Fines and penalties: what insurance can and cannot pay

Reviewed by the Apex broking team · Last reviewed 2026-08-22 · Position stated as at August 2026

The short answer

• Criminal fines: not insurable. A policy that indemnified you against a fine imposed for your own criminal conduct would be unenforceable on public policy grounds. No reputable UK wording offers it.
• Most regulatory penalties: not insurable. Where a penalty is punitive and is imposed personally on the wrongdoer, the same principle applies. In the financial services sector the FCA goes further and prohibits it by rule.
• Defence costs: commonly insurable. The legal costs of responding to an investigation, prosecution or enforcement action are routinely covered, subject to the wording and often subject to repayment if you are ultimately convicted.
• Civil compensation: insurable. An order to compensate someone you have harmed is not a punishment, and liability policies exist precisely to answer it.

Why the rule exists

The principle is old and it is not really about insurance at all. It is about not allowing a person to profit from, or escape the consequences of, their own wrongdoing.

In Beresford v Royal Insurance Co Ltd [1938] AC 586 the House of Lords held that a claim could not be enforced where to allow it would be to permit recovery arising from the assured’s own criminal act. The reasoning generalises: a fine is imposed on a particular person because the law has decided that person should feel it. If an insurer pays it, the deterrent is gone and the sentence has been rerouted onto a commercial third party.

The same logic explains why the point cannot be fixed by drafting. It is not that insurers decline to offer the cover; it is that a contract to provide it would not be enforced.

Regulatory penalties: Safeway v Twigger

The leading modern English illustration is Safeway Stores Ltd and others v Twigger and others [2010] EWCA Civ 1472 (Court of Appeal, 21 December 2010; Pill, Longmore and Lloyd LJJ).

Safeway had been penalised by the Office of Fair Trading under the Competition Act 1998 in connection with dairy pricing, and sued its former directors and employees to recover the penalty and its investigation costs. The Court of Appeal held that the liability to pay the penalty was personal to the undertaking rather than vicarious, and that the ex turpi causa principle therefore barred the company from passing it on to the individuals whose conduct had caused it. Longmore LJ put the inconsistency directly: a claimant cannot be personally answerable for conduct before one court and disclaim personal responsibility for the same conduct before another.

The case is not, strictly, an insurance case — it concerns recovery from employees rather than from an insurer. It matters here because it establishes the character of a regulatory penalty in English law: it is personal, it is punitive, and the law will not help you move it to someone else.

The FCA goes further and prohibits it by rule

For FCA-authorised firms the position is not left to general principle. Chapter 6 of the FCA Handbook’s General Provisions deals with it expressly:

• GEN 6.1.5R prohibits a firm from entering into, arranging or claiming under a contract of insurance that is intended to have, or has or would have, the effect of indemnifying any person against all or part of a financial penalty.
• GEN 6.1.4A R prohibits most firms from paying a financial penalty imposed on a current or former employee, director or partner, with an exception for sole traders.
• GEN 6.1.6R applies equivalent restrictions to members of the Society of Lloyd’s, managing agents and members’ agents in connection with Lloyd’s insurance business.
• GEN 6.1.7G makes clear that none of this prevents insurance covering the costs of defending FCA enforcement action, or costs a firm may be ordered to pay to the FCA.

That last provision is the practical heart of it. The penalty is off limits; the defence is not.

What is insurable, in practice

Set against the prohibition, a surprising amount of the financial consequence of an investigation or prosecution can be insured. Depending on the policy and the wording:

• Legal defence costs for criminal proceedings, regulatory investigations, enforcement action and disciplinary hearings.
• Legal representation at inquiries and inquests, and the cost of responding to notices, requests for information and dawn raids.
• Civil damages and compensation awarded to a claimant — the ordinary business of a liability policy.
• Costs orders made against you in civil proceedings, where the wording provides for them.
• Public relations and crisis management costs, where the policy carries that extension.

Two qualifications matter. Defence costs cover is very commonly written with a repayment or “clawback” provision: if you are convicted or a deliberate act is established, the insurer can require the advanced costs back. And defence costs may sit inside the limit of indemnity rather than in addition to it, which changes what is left for a settlement.

The grey areas, honestly stated

Not every sum described as a penalty is punitive, and not every punitive sum is criminal. The following are genuinely fact-sensitive rather than settled:

• Civil and administrative penalties that are compensatory or restitutionary in character rather than punitive. The label on the notice is not decisive; the function of the payment is.
• Penalties imposed on a company for the acts of an individual, and vice versa. Who is being punished changes the analysis, as Safeway shows.
• Data protection penalties. Whether a monetary penalty under UK data protection law can be insured is contested, wordings differ, and some policies expressly cover it only “where insurable by law” — a formula that leaves the question exactly where it started. Our page on GDPR fines versus civil claims goes into this.
• Non-UK penalties. Where a penalty is imposed abroad, the enforceability question can turn on which law governs the policy.

Where a wording promises to pay penalties “to the extent insurable by law”, read it as a conditional promise, not a benefit. In the UK, for criminal fines, the condition will not be met.

What to check on your own programme

• Is there a defence costs extension, and does it sit inside or outside the limit of indemnity?
• Is there a repayment provision, and what triggers it — conviction, admission, or a finding of dishonesty?
• Does the policy respond to a regulatory investigation, or only once formal proceedings have begun? Most of the cost is often incurred before proceedings.
• Are directors and officers covered personally, and is there a wording for cases where the company cannot or will not indemnify them?
• Does the notification clause capture the first letter from a regulator? It usually should.

None of this makes a fine insurable. All of it changes how much of the surrounding cost you carry yourself.

See also

• Fines and penalties under PI insurance — the same question inside a PI wording
• GDPR fines vs civil claims — what is insurable after a data breach
• Management liability insurance — where personal defence costs usually live
• Defence costs — the wiki entry on how costs cover works

References

• Beresford v Royal Insurance Co Ltd [1938] AC 586 (House of Lords)
• Safeway Stores Ltd and others v Twigger and others [2010] EWCA Civ 1472 (Court of Appeal, 21 December 2010)
• Competition Act 1998
• FCA Handbook, General Provisions (GEN) 6.1, including GEN 6.1.4A R, GEN 6.1.5R, GEN 6.1.6R and GEN 6.1.7G

Frequently asked questions

Can any insurance policy pay a criminal fine in the UK?

No. A contract of insurance indemnifying a person against a fine imposed for their own criminal conduct is contrary to public policy and would not be enforced. That is why no reputable UK wording offers it, and why the point cannot be solved by asking for a different clause.

Are regulatory penalties different from criminal fines?

They are imposed by a different route, but for insurance purposes the answer is usually the same. A regulatory penalty is punitive and personal to the person penalised, and in Safeway Stores v Twigger the Court of Appeal held that a company could not pass an Office of Fair Trading penalty on to the individuals responsible. For FCA-authorised firms, GEN 6.1.5R prohibits insuring a financial penalty outright.

What about the legal costs of defending a prosecution or an investigation?

Those are commonly insurable and are a central feature of professional indemnity, management liability and directors' and officers' wordings. GEN 6.1.7G confirms that the FCA's prohibition does not prevent cover for the costs of defending enforcement action. Check whether costs sit inside the limit and whether the insurer can reclaim advanced costs following a conviction.

Our policy says it covers penalties 'where insurable by law'. What does that mean?

It means the insurer will pay only if the law permits it, and for a UK criminal fine the law does not. Treat that phrase as a conditional promise rather than a benefit, and do not let it change the limit you buy or the risk controls you put in place.

This page is insurance information for UK businesses, not legal advice. It is a general summary and cannot take account of your own facts, your policy wording or your regulator’s current rules; take advice before acting on it. Position stated as at August 2026.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.