Insurability of Fines and Penalties Under E&O Policies

In Illinois, the question of whether fines and penalties are covered under E&O policies has been clarified somewhat. But what about elsewhere?

It is unclear whether the Illinois Supreme Court’s recent ruling will have much persuasive effect in other jurisdictions in clarifying the question of insurability (under E&O policies) of fines and penalties.

Are fines and penalties covered under errors and omissions (E&O) policies? In Illinois, the answer has been clarified somewhat by a recent court decision. But the subject can be more complicated for insureds elsewhere.

In Standard Mutual Insurance Company v. Norma Lay et al., decided on May 23, 2013, the Illinois Supreme Court held that damages prescribed by the federal Telephone Consumer Protection Act of 1991 (TCPA) were remedial in nature — and thus insurable under Illinois law. While this is a positive ruling for businesses in Illinois with TCPA exposures, whether it will have a broader impact will depend on several factors, including:

• The specific policy language at issue.
• The laws of the relevant state.
• Any court decisions about the nature of the fines in question.