Wage & Hour Class Action Lawsuit Coverage

Coverage Opportunities Expanded by a Published California Court Of Appeals Decision

What if a claim, typically capable of being asserted in most cases where there has been a wrongful classification of an employee or other failure that technically violated wage and hour law, could be covered under standard Employment Practices Liability Insurance ("EPLI") policies? And, more critically, what if the insurance coverage would not be within the sub-limit for a wage and hour claim, but subject to the full policy benefits. That would be a game changer. That is precisely what a recent decision from a California Court of Appeal concluded may be possible.

In So. Cal. Pizza Co., LLC v. Certain Underwriters at Lloyd's, London etc., 40 Cal. App. 5th 140 (2019), plaintiff (owner and operator of over 250 restaurants) allegedly violated California Labor Code sections 2800 and 2802 by failing to reimburse its delivery drivers for mileage expenses, as well as work-related personal cell phone charges. The defendant, Certain Underwriters at Lloyd's, London etc. (“Underwriters”) asserted that those claims were barred by that exclusion.

The Court disagreed with Underwriters’ legal argument. It held that those employees’ claims were premised, not on failure to pay wages for work performed, but rather on the failure to reimburse for work-related expenses incurred. Thus, these business expenses could be deemed a claim for “employment-related work place torts” within the meaning of the insuring agreement. As a consequence, those business expense claims did not fall within the wage and hour exclusion. 

Many companies suffer from the expense of defending wage and hour class action lawsuits. Some employers who choose to purchase an EPLI policy have received defense benefits in wage and hour class action suits. But this benefit is typically limited by a specific policy provision providing an express sub-limit covering wage and hour claims. Any monies expended beyond the sub-limit are not recoverable. Fees incurred before the sub-limit attaches, typically in a deductible, must be paid by the policyholder before the sub-limit policy benefit kicks in. As a practical matter, this makes wage and hour sub-limit insurance offered in a “defense only” policy with sub-limits of less value to policyholders.

In So. Cal. Pizza Co., it did not matter that there was a $250,000 wage and hour sub-limit. Its existence did not bar potential coverage for all defensive legal work for a class action wage and hour lawsuit because the business expenses that were unpaid were not wage and hour claims.

It is the rare lawsuit where business expenses like those for personal cell phone use may not reveal a potential basis for recovery. Plaintiff’s attorneys, who are often astute in following case law developments that enhance their prospects for recovery due to the presence of insurance coverage, are sure to note this new case.

The benefits of the So. Cal. Pizza Co. coverage analysis are not limited to obtaining a defense in a pending wage and hour class action claim. Re-visitation of coverage denials by insurers could unearth great opportunities for financial recovery. The four-year statute of limitations under California law for the termination of the underlying action through all appeals may give rise to significant potential recovery. All that is required is that the insurer’s coverage denials under EPLI policies are inconsistent with what the So. Cal. Pizza Co. court determined was applicable California coverage law. 

Gauntlett & Associates often evaluates whether prior denials of coverage claims, including those for wage and hour class action suits, should be re-visited. Their recovery available may be substantial.

It is a simple exercise to re-evaluate whether an insurer denial is wrongful. All that is required often is to review the denial letter in light of recent coverage law and determine whether the time for taking action against a wrongful denial of coverage has not passed. In many cases, there may still be more than sufficient time to pursue coverage for what now, clearly, wrongful denials of coverage.