UPDATES & ANALYSIS

Conservator Not Strictly Liable for Investment Decisions Made Without Court Approval

by Ryan Koopmans | September 16, 2011

By Ryan Koopmans

The Iowa Supreme Court ruled, in In Re Alessio, Leo v. First Community Trust, that a conservator is not strictly liable for investment losses, even when he fails to seek court approval for his investment decisions as required by Iowa Probate Code.

First Community Trust (“FCT”) was named conservator for Rose Alessio on October 31, 2007.  FCT invested the conservatorship assets, initially totaling about $330,000, in a relatively conservative strategy with only 20% in equities, the balance in fixed-income securities.  However, FCT made the investments without first obtaining court approval as required by Iowa Code section 633.647(1).   Rose passed away on September 23, 2008.  By that time the conservatorship assets had declined in value by about $34,000, or roughly 10%.  Rose’s executor, Michael Leo, sued FCT seeking reimbursement to Rose’s estate for the decline in value.

There are two statutes at issue in this case.  The first, identified above, requires conservators to obtain court approval prior to investing a ward’s assets.  Iowa Code 633.647(1).  The second, Iowa Code section 633.633A, provides that conservators are not personally liable for their actions or inactions except when, among other things, their actions constitute a “breach of fiduciary duty imposed by this probate code.”  The Iowa Supreme Court framed the question as whether, notwithstanding section 633.633A, a conservator can be held strictly liable for losses resulting from investments made without court approval. 

In ultimately answering that question in the negative, the Court emphasized the relatively recent enactment of section 633.633A (in 1989), and noted that in enacting that statute, the legislature “narrowed the situations in which a court may hold a conservator personally liable.”  Slip. Op. at 10.  Prior to 1989, the Court had held that violation of the statutory duty to obtain prior court approval for investments subjected a conservator to strict liability.  In re Guardianship of Nolan, 249 N.W. 648, 650 (1933).  The Court characterized section 633.633A as “overrul[ing]” Nolan and providing for personal liability only in limited circumstances, including a breach of fiduciary duty.  Slip. Op. at 10.  The Court held FCT did not breach its fiduciary duty to prudently invest Rose’s assets.  It found FCT’s investment committee considered a number of proper factors – including Rose’s age and health status – in making the investments, and noted that the investment strategy selected by FCT had not resulted in a loss over any twelve-month period during the past ten years.  Because FCT did not breach a fiduciary duty, it was not personally liable to reimburse Rose’s estate, in spite of the actual loss resulting from its investment choices.

Tags: Iowa Supreme Court Opinions