A common question which arises is whether fines, particularly monetary penalty notices issued by the ICO, are insurable. The answer is a qualified “no”.
The difficulty in insuring fines arises from the law on public policy (often referred to, by lawyers at least, as the ex turpi causa rule). Broadly speaking, this prevents companies and individuals negating the deterrent effect of fines for wrongful conduct by insuring their exposure. The application of the rule to criminal behaviour is clear. However, the position becomes more difficult in respect of behaviour which is wrongful without being criminal.
The leading case is Safeway v Twigger in 2010. There, the supermarket Safeway attempted to recover fines levied on it by the OFT for price fixing by suing the directors responsible and thereby obtaining access to their D&O coverage. It was held that Safeway could not recover the fines from the directors on the basis that public policy prevented it from recovering its liability for fines. Of more general application was the court’s finding that the public policy bar on recovery would apply to all fines arising from “morally reprehensible” acts. The same principle applies to claims for indemnity under an insurance policy.
In the case of price fixing, which required deliberate or negligent conduct, the court was clear that the public policy argument would arise because fines could only be imposed where the behaviour in question was deliberate or occurred as a result of negligence. However, the court expressly left open the question of whether the principle would also apply to strict liability offences (ie ones where a fine is imposed without there necessarily being any fault on the part of the insured).
Although Safeway v Twigger leaves uncertainty regarding the limits on the recoverability of fines, we can offer some practical guidance on the subject:
- The first step is to understand the statutory basis of the fine. If the statute is criminal in nature or addresses the wrongfulness of the insured’s conduct (by, for example, requiring deliberate, reckless or negligent behaviour) then it is likely that the fines will not be recoverable. In our view this principle applies to ICO fines which are only imposed where there is the equivalent of deliberate, reckless or negligent behaviour.
- If the statute is less clear and, for example, contains reference to morally loaded terms such as “misuse”, then it is also likely that the public policy argument will arise. This sort of issue could arise in relation to fines imposed by other regulators such as Ofcom or the FSA.
- If the basis on which the fine is imposed contains no fault language at all or states that it can be imposed in the absence of fault then the position might be more difficult. There are not many relevant statutory provisions in the UK which are likely to meet this criteria, although it is possible that such liabilities might arise where the insured inadvertently incurs a liability to fines from an overseas regulator.