There is a strong possibility that wage and hour class actions may be covered under many Employment Practice Liability (EPL) or Directors and Officers Liability (D&O) policies. In a pending coverage action in the Central District of California, Professional Security Consultants, Inc. v. United States Fire Insurance Co., No. CV 10-04588 SJO (SSx), 2010 WL 4123786 (C.D.Cal. Sept. 22, 2010), the court recently denied an EPL insurer’s motion to dismiss a complaint where an employer sought reimbursement for costs to defend and settle a California wage and hour class action. Although this ruling is not contained in a published decision, it provides employers with potentially compelling arguments in pressing for insurance coverage in wage and hour class actions.
Employees of Professional Security Consultants (PSC) filed a wage and hour class action alleging PSC violated various California Labor Code provisions by, among other things, disseminating false information concerning wage and hour policies and failing to pay overtime. PSC tendered the class action to its EPL insurer, United States Fire (US Fire). When US Fire denied coverage, PSC brought suit to enforce its rights under the policy. US Fire moved to dismiss the coverage action on the basis that its policy’s Fair Labor Standards Act (FLSA) exclusion barred coverage "for violations of the responsibilities, obligations or duties imposed by…the FLSA…or similar provisions of any federal, state or local or foreign statutory or common law." The court denied the motion to dismiss on the grounds that the FLSA exclusion was not broad enough to cover the misrepresentation and other allegations related to the wage and hour violations.
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