Employment practices liability insurance (“EPLI”) policies often contain explicit language that excludes from coverage or defense claims that are based on any federal or state wage-and-hour laws. Recently, the California Fourth Circuit Court of Appeal gave employers a glimmer of hope – and an incentive to push back if a carrier initially rejects either coverage or defense of certain statutory employment claims.
Souther California Pizza Co. v. Lloyd’s of London
In Southern California Pizza Co. v. Lloyd’s of London, the insured employer owned over 250 Pizza Hut and Wing Street restaurants. Employees brought a class action lawsuit against the employer, alleging various state law wage and hour violations, failure to include required information on wage statements, failure to reimburse business-related expenses, and other related claims. The employer tendered the lawsuit to its insured, Lloyd’s of London, for defense and indemnification under its EPLI policy. Lloyd’s denied coverage asserting that the lawsuit fell within the policy’s exclusion of wage-and-hour claims. The employer then sued for breach of contract and violation of the duty of good faith and fair dealing. The trial court sustained Lloyd’s demurrer to the complaint, without leave to amend, and the employer appealed.
The Fourth Circuit Court of Appeal reversed the trial court’s ruling, holding that only some – not all – of the employees’ claims fell within the policy exclusion. The Lloyd’s EPLI policy exclusion barred coverage for claims “arising out of, directly or indirectly connected or related to, or in any way alleging violation(s) of any . . . state . . . wage and hour or overtime law(s).” Using the ordinary meaning of the words “wage and hour . . . laws,” the Court found that claims for failing to include all required information on wage statements did fall within the meaning of the exclusion because this pertained to payment of wages.
However, the Court found that the employees’ claim that the employer failed to provide reimbursement for business-related expenses was not covered by the exclusion, since this claim related neither to wages nor hours. The Court further found that derivative claims related to the failure to reimburse expenses (under Business & Professions Code Section 17200 and PAGA) also fell outside of the policy’s exclusion. Finally, the Court found that the policy’s $250,000 limit on defense costs was also inapplicable because that limit applied only to excluded wage and hour claims.
Consider EPLI Insurance Very Carefully
Southern California Pizza Co. confirms what we always tell our clients — be very, very careful in selecting the EPLI policy that you purchase. There are many EPLI policies that contain exclusions that are so broad that the policy is virtually worthless; there are other policies that are more fairly written and that could be helpful in the event your company gets sued. Always ask to see a “specimen policy” or “policy form” before committing to the purchase. Have your employment or insurance counsel review that specimen policy carefully and advise you so you are clear whether you are getting the protection you need.
You can read the Southern California Pizza Co. case here.