Who pays for the defense of FLSA claims against a local government entity, and who pays for the liquidated damages and attorneys’ fees if the local government entity loses?  The Fourth Circuit Court of Appeals issued an opinion recently which  answered these questions:  Republic Franklin Insurance Company v. Albemarle County School Board, No. 10-1961 (4th Cir. February 24, 2012).

Bus drivers in Albemarle County claimed that their rights under the Federal Labor Standards Act (FLSA) were violated, and sought unpaid wages, overtime, liquidated damages and attorney’s fees pursuant to 29 U.S.C. § 216(b) in a federal lawsuit filed in the U.S. District Court for the Western District of Virginia.  The Albemarle County School Board reported these claims to its CGL insurer, Republic Franklin Insurance Company, which denied coverage saying the claims were not “losses” arising from a “wrongful act” covered by its CGL policy.  On cross-motions for summary judgment, the federal judge agreed, finding in favor of the insurance company.  The court reasoned that payment of due wages and overtime was a “pre-existing duty” and therefore was not a “loss” and not a “wrongful act.” 

The Albemarle County School Board appealed, arguing that an FLSA violation was, indeed, a “wrongful act” and that although payment of due wages and overtime was a pre-existing duty, the payment of the liquidated damages and attorney’s fees was not, and therefore was a “loss” under the CGL policy.

The Fourth Circuit Court of Appeals (Niemeyer, Motz and Floyd, Circuit Judges) agreed with the School Board.

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