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Providing Developments &amp; Insight on Trending Topics in Employment Law

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In a win for California employers, the California Court of Appeal for the Fourth District held in Southern California Pizza Co., LLC v. Certain Underwriters at Lloyd’s, London Subscribing to Policy Number 11EPL-20208, 2019 WL 4572859, that claims against the insured employer brought under California Labor Code §§ 2800 and 2802 were potentially covered by the applicable Lloyd’s of London policy. In doing so, the Court narrowly interpreted the policy’s “wage and hour” exclusion and overruled the trial court’s order sustaining the carrier’s demurrer to the insured’s coverage and bad faith complaint.

The applicable policy language reads, “[t]his Policy does not cover any Loss resulting from any Claim based upon, arising out of, directly or indirectly connected or related to, or in any way alleging violation(s) of any foreign, federal, state, or local, wage and hour or overtime law(s), including, without limitation, the Fair Labor Standards Act; however, we will pay Defense Costs up to, but in no event greater than $250,000 for any such Claim(s)…”

The Court began with an analysis of the policy language, specifically the meaning of “wage and hour laws.” Citing definitions from dictionaries and caselaw, the Court concluded that the phrase “‘wage and hour law(s)’ refers to laws concerning duration worked and/or remuneration received in exchange for work.” Applying that definition to the claims against the insured in the underlying lawsuit, the Court found that claims alleging violations of Labor Code § 226 were excluded, as “all…characteristics point toward the statute being a quintessential wage law…”

However, the Court found that claims under Labor Code §§ 2800 and 2802 alleging failure to reimburse employees for business-related expenses were not excluded because “neither statute mentions wages or hours, nor do they appear in the parts of the Labor Code titled ‘compensation’ or ‘working hours.’” The Court found further support for their position in the fact that “disbursements for losses and work-related expenditures are not payments made in exchange for labor or services,” and “our Supreme Court previously characterized claims seeking reimbursement of business expenses as ‘nonwage’ claims.” After finding that the §§ 2800 and 2802 claims fell outside the policy’s wage and hour exclusion, the Court also found that the allegations were potentially covered under the policy’s coverage for “Inappropriate Employment Conduct” which provided coverage for “any other employment related workplace tort.” The Court further found that claims alleged against the insured for violations of Business and Professions Code § 17200 and the Private Attorneys General Act were also potentially covered, as those claims were derivative of the failure to reimburse business-related expenses. Lastly, and importantly, the Court held that the policy’s $250,000 limit on defense costs was inapplicable, as the limit applied only to excluded wage and hour claims.

Moral of the story: Read your policy language carefully; it may provide more coverage than the insurer wants to admit. Don’t allow your insurer, or the courts, to decline coverage without a careful analysis of your policy language.

core/freeform

Costa Mesa

Counsel

Marcus McCutcheon

California Court of Appeal Concludes That Claims Under Labor Code 2800 and 2802 Not Excluded From Coverage by “Wage and Hour” Exclusion in Lloyd’s of London Insurance Policy