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(Article from Insurance Law Alert, September 2015)

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A New York trial court ruled that statutory damages awardable under the Fair Credit Reporting Act (“FCRA”) constitute covered compensatory damages under an errors and omissions policy.  Navigators Ins. Co. v. Sterling Infosystems, Inc., 2015 WL 4540389 (N.Y. Sup. Ct. July 28, 2015).

Navigators Insurance argued that it had no duty to defend or indemnify two FCRA actions filed against policyholder Sterling on the basis that the suits sought only “penalties,” which were excluded from coverage.  The court disagreed, finding that damages awardable for willful FCRA violations constituted covered compensatory damages.  Noting that categorization of damages is “not always so clear cut,” the court concluded that the FCRA damages functioned “primarily” as compensation rather than punishment.  In so ruling, the court explained: “[t]hat Congress provided a consumer the option of recovering either actual or statutory damages, but not both, supports the presumption that they serve the same purpose.”  The court also reasoned that FCRA statutory damages served a non-punitive purpose by “facilitat[ing] litigation in instances in which actual damages are difficult or impossible to calculate.”  Finally, the court explained that interpreting the statutory damages as compensatory “results in a more harmonious reading of the FCRA’s overall damages structure” because the FCRA contains a separate provision relating to punitive damages.