Hunton Insurance Recovery Blog

While companies develop their return-to-office policies or decide to keep employees working remotely, they should be mindful of potential liability under the Worker Adjustment and Retraining Notification Act (“WARN Act”) in the event of future layoffs. A recent opinion from the Eastern District of Virginia provides a timely alert for companies to review their employment practices liability (“EPL”) coverage and understand their risk of future exposures. The court held that remote employees alleging violations under the WARN Act—a statute requiring sixty days’ notice before a “mass layoff” at a “single site of employment”—could receive class certification, despite the fact that class members physically worked at different locations. EPL policies can effectively mitigate the related risk by covering the cost of litigation, as well as the company’s resulting liability.

The Central District of California recently rejected an attempt by Federal Insurance Company, a Chubb company, to avoid its duty to defend its insureds in an $8.5 million lawsuit with a former employee.

TriPacific Capital Advisors, LLC acquired Directors and Officers (D&O) coverage from Federal and Employment Practices Liability (EPL) coverage from Travelers Insurance Company. While those policies were in effect, a former TriPacific employee sued the company and its president, Geoffrey Fearns, for a variety of employment-related causes of action concerning his termination and compensation. TriPacific and Fearns tendered notice to both insurers, seeking indemnification and defense costs. Both policies contained a duty to defend.  While Travelers agreed to defend under a reservation of rights, Federal denied coverage based on multiple grounds, including its policy’s “other insurance” provision, contending that the provision rendered its policy “excess” to the Travelers policy.  Federal also argued that TriPacific had not satisfied the D&O policy’s $150,000 self-insured retention and, thus, coverage had not been implicated, in any event. TriPacific maintained that neither the SIR nor the “other insurance” provision pertained to Federal’s duty to defend and brought suit to enforce the duty to defend.

On August 27^th, a California Appellate Court held that an employment practices liability insurance policy’s “wage and hour” exclusion must be construed narrowly to bar coverage only for claims related to “laws concerning duration worked and/or remuneration received in exchange for work.” In doing so, the court made clear that “wage and hour” exclusions do not preclude coverage for claims that go beyond the employee’s actual remuneration received in exchange for work.

On November 14, 2016, a federal judge in California denied summary judgment to Hanover Insurance Co. (Hanover), finding that class claims alleging a failure to reimburse reasonable business expenses were not excluded by a "wage-and-hour" exclusion contained in EPLI policies issued by Hanover. The lawsuit, brought by a former student of the Bellus Academy beauty school, alleged that Poway Academy (the owner of Bellus) and Beauty Boutique, Inc. (BBI) (operator of two other schools under the "Bellus" name), failed to compensate students for working on paying clients at an onsite salon and also failed to reimburse them for out-of-pocket costs to purchase necessary supplies. The lawsuit alleged a variety of wage-related claims. The lawsuit also alleged that the schools failed to reimburse necessary business expenses in violation of Section 2802 of the California Labor Code.