Insurance Coverage for Wage and Hour Litigation Claims

by Gilbert LLP
Contact

[authors: Barry Buchman, Kami Quinn, and Jason Rubinstein]

There has been a surge in wage and hour litigation recently, and it has been getting a lot of attention.  See, e.g., M. Huisman, Seyfarth Shaw Study Shows Increase in Wage and Hour Labor Suits, Corporate Counselor (July 27, 2012); J. Segal, The New Workplace Revolution: Wage and Hour Lawsuits, CNNMoney (May 29, 2012).  This surge is due, in large part, both to the Great Recession and to technological advances allowing work from remote locations.  See P. Davidson, Overworked and Underpaid, USA Today (Apr. 16, 2012).

An often overlooked component of a company’s protection from the financial consequences of this type of litigation is its insurance policies.

Most employers, for example, routinely purchase employment practices liability (EPL) coverage.  This coverage typically exists either in separately-purchased EPL policies or, particularly with private companies, in directors and officers (D&O) insurance policies that include an EPL coverage component.

Yet, there is a common misperception that these policies do not cover wage and hour lawsuits.  Insurance companies have created this misimpression by relying on two principal arguments.  First, they assert that amounts expended in wage and hour claims do not constitute “loss” within the meaning of these policies because the claims seek only uninsurable restitution, and second, they argue that coverage is barred by the Fair Labor Standards Act (FLSA) exclusion often found in these policies.

Companies, however, should not accept these contentions at face value.

First, as with all coverage issues, the specific language of the policy matters. Some definitions of “loss” are broader than others, and some FLSA exclusions are narrower than others.

Second, the allegations of the particular wage and hour claims are important.  Plaintiff lawyers usually assert multiple claims and allege various theories of liability.  If even a single claim or theory is within the scope of coverage, the employer may be entitled at least to partial coverage.

Third, consistent with the two points above, several recent court decisions have cast doubt on the insurance industry’s principal arguments.  For example, in SWH Corp. v. Select Insurance Co., 2006 WL 2786930 (Cal. Ct. App. Oct. 19, 2006), the court denied the insurers’ request for summary judgment on whether the amounts sought in a wage and hour suit were “restitution,” and thus not “loss,” under the policy.  The court also found that the underlying allegations did not come within the policy’s FLSA exclusion.  Similarly, in California Dairies Inc. v. RSUI Indemnity Co., 617 F. Supp. 2d 1023 (E.D. Cal. 2009), the court found that the policy’s FLSA exclusion applied to some, but not all, of the allegations against the company.

Fourth, an insurance company’s duty to pay for its insured’s defense is broader than its duty to cover judgments or settlements.  So, even if it is ultimately determined that an insurer is not obligated to cover an underlying wage and hour settlement or judgment, the insurer may still be obligated to cover defense costs in the interim.  This “litigation insurance” can be very valuable, because wage and hour suits often proceed as class actions, and the costs of defending such actions can be very substantial.

Employers also should be aware that some insurers do offer specialty policies designed to cover wage and hour claims.  These policies, however, frequently cover only defense costs and contain low limits of liability.  Furthermore, insurance companies often erroneously market such products on the premise that there is never wage and hour coverage under EPL policies.  Thus, although employers should consider whether such specialty coverage makes sense for their business, they should still preserve and, when necessary, exercise their right to pursue coverage under their EPL policies, which typically have higher limits.  The specialty policies also can differ materially from each other, so a careful review of any proposed policy language is warranted.

Regardless of whether an employer is currently facing wage and hour claims, there are steps that all companies can take now to put themselves in the best position to potentially secure insurance coverage should the need arise.

First, collect, organize and safeguard all of the company’s policies.  This includes an effort to identify and obtain policies issued to other pertinent companies, such as predecessors and current or former affiliates of your company.

Second, consider having an insurance professional audit the organization’s insurance portfolio to confirm that the company has the most complete and cost-effective coverage available.

Third, if the company becomes aware of the possibility of a wage and hour lawsuit, or is actually served with one, it should, with rare exceptions, promptly notify its insurers.

In sum, the coverage provided by insurance policies for wage and hour lawsuits can be an extremely valuable corporate asset.  Companies can maximize the benefits of this asset by acting proactively now, and by being willing to question coverage denials from their insurers.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Gilbert LLP | Attorney Advertising

Written by:

Gilbert LLP
Contact
more
less

Gilbert LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.