By: Jeff Kershaw
Plaintiffs are filing wage-and-hour suits at a rapid clip so far in 2017, continuing an almost decade-long trend, and the steady pace of litigation shows no signs of abating notwithstanding the recent efforts of the Trump administration to curtail the impact of the Fair Labor Standards Act (“FLSA”). Such claims, typically brought by employees and alleging unpaid wages or a failure to pay overtime, can present employers – and their insurers – with enormous potential exposure, particularly in multi-plaintiff class actions.
Both Directors and Officers (“D&O”) and Employment Practices Liability (“EPL”) liability insurance policies usually contain exclusions purporting to eliminate coverage for wage-and-hour claims. Typical exclusionary language bars coverage for “loss for any claim for violation of the responsibilities, duties or obligations imposed on an insured under any wage and hour law” or for “any actual or alleged violation of…the Fair Labor Standards Act…or any rules or regulations promulgated thereunder, or similar provisions of any federal, state or local statutory law or common law.”
Insurers must nevertheless tread carefully before denying coverage for any wage-and-hour suit. Some courts, particularly in California, have shown little hesitation in construing relevant exclusions as ambiguous depending on the specific circumstances at issue. This is especially true where courts consider state wage-and-hour protections, along with the question whether such enactments are “similar” to federal FLSA provisions. In PHP Insurance Services, Inc. v. Greenwich Insurance Co., for example, the court sided with the insured, granting its summary judgment motion and holding that the specific California Labor Code provisions at issue were not analogous to any FLSA Provisions, and therefore, not “similar.” No. 15-CV-00435-BLF, 2015 WL 4760485, at *8 (N.D. Cal. Aug. 12, 2015). Likewise in California Dairies, Inc. v. RSUI Indemnity Company, the court held that the relevant policy’s FLSA exclusions applied to some, but not all, of the relevant allegations. 617 F. Supp. 2d 1023, 1028 (E.D. Cal. 2009). The lesson of these cases that insurers must carefully consider both the specific provisions cited by the plaintiff(s) and whether they closely track the FLSA in making any coverage determination.
Beyond these questions of statutory interpretation, a careful, case-by-case assessment of the specific wage-and-hour claims asserted is necessary as part of any coverage analysis. For example, many such suits include allegations that an insured “misclassified” employees as exempt from overtime requirements, or, for example, forced employees to work without overtime. A court could well construe these sorts of claims as alleging the kinds of “employment-related misrepresentations” or “breach of implied contract” covered by an EPL policy. Such allegations may also go hand-in-hand with allegations of covered discrimination.
If you have any questions or would like more information, please contact Jeff Kershaw at [email protected].