Does D&O Cover Fines?

A D&O policy’s definition of loss may exclude civil or criminal fines, sanctions, taxes, or penalties, and the law may restrict whether particular penalties can be insured. The Travelers specimen expressly excludes categories of fines and sanctions, while the Federal Reserve letter discusses exclusion requirements for prohibited bank indemnification payments in its limited regulated context. Neither source supplies a universal rule for every state, penalty, or business. Inspect the loss definition, fines-and-penalties exclusion, severability, and governing-law provisions; ask counsel about insurability in the relevant jurisdiction before treating a fine as covered.

Even where the policy funds a covered defense or settlement, a fine may be outside the definition of loss. Whether a civil or regulatory penalty is legally insurable depends on the jurisdiction and type of penalty; the Federal Reserve source addresses only regulated financial institutions and should not be generalized to all companies. A/B/C does not settle insurability. Read the loss definition and fines-or-penalties exclusion, identify any state-law limitation, and ask counsel about the specific penalty. Also distinguish a fine from defense expenses, restitution, or a settlement, which may have different treatment and allocation.