Employment practices liability policies may cover code, wage & hour violations

Lawsuits alleging wage and hour or labor code violations might be covered under employment practices liability (EPL) insurance policies, according to Shaun Crosner, insurance recovery lawyer with Pasich LLP.

He advises employers to closely examine the precise language in their liability policy.

Related: Practical solutions to novel employment law issues

Digging further into the matter, BenefitsPRO sister site the Insurance Coverage Law Center (ICLC) met with Crosner to uncover how the pandemic spurred an uptick in wage and hour lawsuits and class action cases and what language in an EPL policy is important to consider.

ICLC: What language in an EPL policy is important/?

Crosner: The truth of the matter is that all policy language is important, as any policy term or condition could have a bearing on coverage for a particular claim. That said, certain policy terms tend to be particularly important when analyzing coverage for so-called “wage and hour” lawsuits and other claims alleging violations of state labor code provisions.

For one, most EPL policies expressly cover various forms of alleged employment-related wrongful acts, and the scope of coverage for such wrongful acts is typically set forth in the policy’s coverage grant (which, in turn, may rely on one or more defined words or phrases). For instance, many EPL policies cover alleged employment-related misrepresentations, employment-related discrimination, failure to implement and enforce appropriate corporate policies and procedures, breach of implied contract and the like. Numerous courts and arbitrators have held that coverage grants of this sort are sufficiently broad to encompass various claims and allegations commonly asserted by employees in lawsuits alleging wage-hour violations and other violations of state labor code provisions.

It is also important for insured employers and their counsel to review policy exclusions when assessing coverage. In this regard, although it is common for EPL policies to exclude coverage for certain types of wage and hour claims, such exclusions are not always as broad as EPL insurers might suggest. And, importantly, unless an exclusion bars coverage for all asserted claims and allegations in an underlying lawsuit, it will not altogether excuse an insurer’s coverage obligations. For this reason, and because EPL policy exclusions can vary significantly in their precise wording and scope, employers and their counsel are right to question adverse coverage positions premised on policy exclusions. Indeed, many courts and arbitrators have rejected attempts by EPL insurers to rely on exclusions to deny coverage for underlying allegations of wage-hour or other labor code violations.

Along the same lines, wage and hour sublimits in EPL policies have become increasingly common and are important terms to review in this context. Most commonly, such sublimits provide a limited amount of coverage for the cost of defending against certain forms of wage and hour claims. However, a wage and hour sublimit will only limit an insurer’s coverage obligations if it applies to all allegations and claims asserted in the underlying lawsuit. When wage and hour sublimits are defined narrowly (as is often the case), an EPL insurer may be obligated to provide broader coverage for a particular claim. For this reason, insured employers and their counsel should not necessarily assume that a wage and hour sublimit will define the full scope of an insurer’s coverage obligations. Depending on the specific claims and allegations asserted in an underlying lawsuit, a wage and hour sublimit might have little or no bearing on an insurer’s broader coverage obligations.

In short, EPL policies tend to provide very broad coverage, and exclusions and other limitations are not always as broad as EPL insurers might contend. Insured employers and their counsel should, therefore, scrutinize denials and other adverse coverage positions — and doing so may result in employers obtaining coverage for the costs of defending and resolving underlying lawsuits alleging wage-hour and other labor code violations.”

ICLC: Can you share some risk management issues and pre-litigation strategies for employers?

Crosner: From a risk management perspective, it is important for insured employers and their counsel to be thinking about insurance early in the process. Indeed, timely reporting of claims is the first step to ensuring that an employer preserves its right to pursue coverage. In this regard, employers and their counsel should familiarize themselves with their policies’ specific reporting requirements.

Some EPL policies merely require “prompt” notice of claims or notice “as soon as practicable” during the policy period. Other policies, however, may purport to impose more specific and stringent reporting requirements. For instance, some policies require the insured employer to provide notice within some specified timeframe — often as little as 30 or 60 days — after learning of a claim. Because the failure to comply with a policy’s notice and reporting requirements can impair the pursuit of coverage, employers and their counsel should make every effort to comply with all policy conditions, including those that govern the reporting of claims.

Relatedly, in addition to the timely reporting of lawsuits and arbitration demands, some EPL policies purport to require notice of pre-litigation demands from employees. In fact, depending on the precise circumstances and policy language at issue (as well as the nuances of governing law), the failure to timely report a pre-litigation demand could jeopardize an employer’s coverage for a subsequent related lawsuit. For this reason, insured employers and their counsel should review their EPL policies to determine both timing-related requirements and what claims need to be reported — and, again, should make every effort to comply with those requirements.

ICLC: What do you predict employers can expect as wage and hour lawsuits continue to increase?

Crosner: It is important for employers and their counsel to understand that, from an insurance coverage standpoint, the landscape is always changing. Each year, many EPL insurers modify their coverage forms, making changes to policy terms and conditions that could have a bearing on coverage for wage and hour claims and other lawsuits alleging violations of state labor code requirements. By the same token, each year brings new decisions from courts and arbitrators interpreting the key policy provisions and applying them in different contexts.

In terms of the “big picture,” employers and their counsel should not discount the possibility that their EPL policies might afford them with valuable coverage to help defray the costs associated with defending and resolving claims alleging wage-hour and other labor code violations. Although insurers frequently dispute coverage for such claims, their positions often are incorrect. For this reason, insured employers and their counsel should view any adverse coverage positions with scrutiny. By doing so, employers might find that they are entitled to broad coverage for such claims.”