The Insurability of Claims for Restitution

Does and should a wrongdoer's liability insurance cover an aggrieved party's claim for restitution (e.g., a claim for the disgorgement of ill-gotten gains)? This article answers those questions. It does so by first answering the question of whether claims for restitution are covered under the terms of liability insurance policies. Then, after concluding that they are, it addresses the question of whether claims for restitution should be insurable as a matter of public policy and insurance law theory. There are long-standing legal and equitable principles that, on the one hand, dictate that a wrongdoer should not be allowed to benefit from its wrongdoing, which the wrongdoer would if insurance were allowed to cover claims for restitution. On the other hand, there are competing public policies that favor enforcing contracts and compensating innocent victims. If a claim for restitution is covered by the terms of an insurance policy, but such claims are viewed as uninsurable as a matter of public policy, then policyholders would have paid millions of dollars in premiums for policies that provide illusory coverage and thousands of innocent victims with billions of dollars of claims would not receive compensation. In analyzing these issues, this article does so by using two common examples where the insurability of claims for restitution are regularly implicated — intellectual property infringement claims under Commercial General Liability insurance policies (CGL policies) and shareholder fraud claims under Directors and Officers liability insurance policies (D&O policies)