Civil fines and civil penalties are currently available as financial sanctions that can be imposed on violators of certain environmental regulations or statutes. These penalties were instituted to deter violators from falling out of compliance, as well as to discourage potential future violators.
On September 8, 2016, the Office of the Comptroller of the Currency announced, after its own investigation into Wells Fargo’s sales practices, that a “cease and desist” consent order was levied against the bank. This was designed to immediately stop the unsafe sales practices by the bank, along with an order requiring the bank to pay a civil monetary penalty of $35 million dollars. This is a perfect example of why lending institutions should carry coverage for civil monetary penalties.
California Casino found guilty of violations
The Financial Crimes Enforcement Network (FinCEN) earlier last year, announced a settlement, and a $2.8 million assessment against Hawaiian Gardens Casino, Inc., a card club in a suburb of Los Angeles, California. The assessment came after owners admitted they had violated the Bank Secrecy Act’s (BSA) program and reporting requirements and agreed to future undertakings, including periodic independent reviews to examine and test its BSA Anti-Money Laundering (AML) program.
The Office of Inspector General (OIG) has the authority to seek civil monetary penalties (CMPs), assessments, and exclusion against an individual or entity based on a wide variety of prohibited conduct. The coverage for civil fines and penalties is often found within the policy’s definition of losses or damages, or alternatively as an exception to the policy’s fines and penalties exclusion.
Usually the language is qualified in such a way that the grant will only operate where “allowable” or “insurable” by law, which is also the case with punitive damages coverage. Whether or not civil fines and civil penalties, as well as punitive damages, are “allowable” or “insurable”, is left to each of the individual states to determine, based upon an analysis of whether insuring them would violate public policy.
To date, a majority of states allow directly assessed punitive damages to be insured, so, by extension, one could expect that in those same jurisdictions, civil fines and penalties that are imposed without regard to fault, would be insurable. It’s a very complex set of rules that should fall into the hands of an insurer familiar with acts determined to be violations of the laws and requiring coverage for civil monetary penalties.