What is Insurance for Civil Monetary Penalties?
There are a number of insurance options available for financial institutions to protect them from loss. Crime liability insurance can help cover losses when the company is the target of criminal activity. Cyber and network security insurance can provide coverage for losses incurred due to a cyber security breach. There’s even insurance for directors and officers but coverage for civil monetary penalties isn’t included. So what makes this kind of loss different and why isn’t it included under company insurance policies?
Civil monetary penalties are one of several kinds of actions regulatory agencies can take against financial institutions in response to alleged wrongdoing. Rather than being the responsibilities of the company itself, these penalties must be paid by the director or officer against whom they are levied. This can be a significant burden to an individuals personal assets.
Financial institutions are restricted by regulations from including coverage for civil monetary penalties under company insurance policies. However, directors and officers can purchase separate insurance that specifically covers these kinds of penalties.
When a financial institution is investigated for alleged wrongdoing, severe monetary penalties can be levied not only against the company, but against individuals serving in leadership positions. Rather than risk personal financial loss, directors and officers can protect themselves with civil monetary penalties insurance.