Civil money penalties are sometimes levied by courts against individual directors and officers of financial institutions for alleged wrongdoing. In the past, these institutions would commonly offer an insurance policy to directors and officers to protect against liability for such penalties; however, in recent years the FDIC has made it clear that financial institutions may not provide civil money penalties insurance for their directors and officers. This has left directors and officers of banks and other financial institutions around the country exposed to liability for civil money penalties imposed on them during their service to their institutions.
While the financial institutions themselves may not provide their directors and officers with civil money penalties insurance, the individuals may purchase the insurance for themselves. These policies typically have low deductibles and cover up to $250,000 in civil money penalties in the event that the insured is personally penalized by a regulatory body as a result of an investigation, though they do not cover the costs of the director or officer’s defense. Personal CMP insurance policies provide new options for officers and directors who previously had no coverage for civil money penalties and allow them to feel a bit more confident that their assets will not be at risk due to their service on a bank board.