California Court of Appeal Expands Insurance Coverage for Wage and Hour Litigation Under EPLI Policies

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In a decision published on September 20, 2019, the California Court of Appeal for the Fourth Appellate District narrowly construed the meaning of the term “wage and hour law(s)” in the “Wage and Hour Exclusion” common to Employment Practices Liability Insurance Policies (“EPLI”), and determined it applies only to “laws concerning duration worked and/or remuneration received in exchange for work.”  Southern California Pizza Co., LLC v. Certain Underwriters at Lloyd’s, London etc., 40 Cal. App. 5th 140, 148 (2019) (“SoCal Pizza”).  In particular, the Court held that a claim seeking reimbursement of business expenses in a wage and hour lawsuit did not come within the “Wage and Hour Exclusion” in the EPLI policy at issue, and triggered a defense obligation.  In doing so, it greatly expanded the potential that EPLI carriers will have a duty to defend an entire wage and hour action from beginning to end, and to make significant contributions towards settlement of such claims.

The Court’s holding is good news for EPLI policy-holders currently engaged in and/or facing wage and hour litigation because, depending on the claims made, EPLI carriers will have to defend policyholders in such litigation immediately and entirely pursuant to their obligations under long-standing California insurance law.  See, Buss v. Superior Court, 16 Cal. 4th 35 (1997).  Before the SoCal Pizza decision, carriers could assert the common “Wage and Hour Exclusion” found in one form or another in most EPLI policies to deny and/or limit the carrier’s defense obligation.  The “Wage and Hour Exclusion” in standard EPLI policy forms typically reads:

This Policy does not cover any Loss resulting from any Claim based upon, arising out of, directly or indirectly connected or related to, or in any way alleging violation(s) of any foreign, federal, state, or local, wage and hour or overtime law(s), including, without limitation, the Fair Labor Standards Act.

See, e.g., SoCal Pizza, supra, 40 Cal. App. 5th at 145 (emphasis added).

In SoCal Pizza the Court held that the insurer had a duty to defend the insured in the underlying employment action because it determined that the phrase “wage and hour . . . law(s)” does not encompass non-wage claims such as those at issue in the case for reimbursement pursuant to section 2800 and 2802 of the California Labor Code (e.g., reimbursement for mileage, mobile phone, etc.).  Id. at 152.  While it is worth noting that the Court included within the definition of the phrase laws “concerning duration worked” as distinguished from those concerning wages earned (e.g., meal and rest break laws – relating to duration, but having little to do with wages) there is a colorable argument that such claims should be covered because the policy language uses the conjunctive “and” where the Court added the disjunctive “and/or” to the phrase “wage and hour laws.”  Id. at 144.  However, carriers are likely to continue denying coverage asserting the “Wage and Hour Exclusion” as to such claims.

Regardless, attorneys representing employers facing wage and hour litigation asserting non-wage claims (e.g., reimbursement claims) should review their clients’ EPLI policies to evaluate the potential availability of a complete defense to the litigation not previously available.  For litigation spanning years, the defense fees potentially owed in arrears could be very significant.  Moreover, carriers having a defense obligation may be more inclined to make larger settlement contributions than they otherwise would have, and must consider any reasonable settlement offer within policy limits without taking coverage of any of the asserted claims into consideration.  Johansen v. California State Auto. Assn. Inter-Ins. Bureau, 15 Cal. 3d 9, 12 and 16 (1975).

The potential benefit to EPLI policyholders of the Court’s ruling in SoCal Pizza will be far reaching, and its full impacts are not yet known.  However, there is no question that in ruling as it did, the Court clarified that EPLI policies afford coverage for certain claims within typical wage and hour lawsuits that insurance carriers have traditionally denied.

For more information about what the expansion of insurance coverage may mean to your organization, please contact Yaniv Newman at Sullivan Hill. Mr. Newman is an attorney and a member of Sullivan Hill’s Construction, Insurance, and Commercial and Business Litigation practice groups. His practice focuses in the area of insurance coverage, representing and advising clients on insurance coverage matters. 

About Sullivan Hill:

Sullivan Hill has provided efficient, aggressive and responsive legal representation for more than 50 years. The firm provides full service representation to clients in a variety of industries with an emphasis in insolvency, construction disputes, insurance coverage, employment law, real estate, business disputes, civil litigation, and transactional work.  The firm has offices in San Diego and Las Vegas.

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On October 23, 2019
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