The United States District Court for the Northern District of
Illinois, applying Illinois law, has held that an E&O policy
does not afford coverage for a settlement with two government
agencies, including the payment of fines or penalties, to resolve a
dispute regarding the insured's allegedly fraudulent business
practices.
Diamond Residential Mortg. Corp. v. Liberty Surplus Ins.
Corp., 2024 WL 1254220 (N.D. Ill. Mar. 25, 2024).
The policyholder was a mortgage lender in Illinois. In March
2018, a state government agency began investigating allegedly
fraudulent loan origination practices in the lender's
Springfield, Illinois branch. The agency ultimately determined that
the branch had fraudulently originated certain loans, and the
lender negligently supervised that branch. After the agency
suspended the branch's license, the Illinois Attorney General
began investigating the branch. In October 2018, the lender, the
agency, and the Attorney General entered into a
