Insurance Win for Wage and Hour Defense Highlights Need to Scrutinize EPLI Coverage Denials
Time 4 Minute Read
Insurance Win for Wage and Hour Defense Highlights Need to Scrutinize EPLI Coverage Denials

In a decision first discussed on the Hunton Insurance Recovery Blog on September 6, 2019,  a California Appellate Court held that underwriters at Lloyd’s of London must defend the owner/operator of hundreds of Pizza Hut and Wing Street restaurants in a putative employee class action accusing the company of labor law violations, finding that an employment practices liability insurance (EPLI) 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.

In Southern California Pizza Co., LLC v. Certain Underwriters at Lloyd’s, London Subscribing to Policy Number 11EPL-20208, the plaintiff, the owner/operator of 250 Pizza Hut and Wing Street Restaurants, was insured under an EPLI policy issued by the defendant. The policy was designed to afford coverage for losses arising from employment-related claims brought against the plaintiff, subject to certain exclusions.  Southern California Pizza is one of several franchisees named in the underlying putative class action initially filed in California state court in May 2014 (find the Complaints here and here) alleging violations of various labor code provisions, in particular, failing to provide overtime wages, accurate work-hour statements or proper meal and rest periods, as well as failing to reimburse employees for business related expenses.

After being named, Southern California Pizza sought coverage under its EPLI policy. Lloyd’s denied coverage and argued that because entire underlying lawsuit alleged only violations of wage and hour laws, once they paid the $250,000 cap required under the policy’s “wage and hour” exclusion, the exclusion relieved Lloyd’s of any further defense obligations. Southern California Pizza disagreed and filed suit arguing that the exclusion should be construed narrowly and therefore did not reach all of the claims asserted.

In response, Southern California Pizza filed its current suit, seeking to force the insurer to continue to cover its defense.  Last month, a three-judge panel of the appellate court reversed a February 2018 trial court order siding with the Lloyd’s, finding that some of the claims in the underlying complaint should not be barred.

The appellate court held that “using the ordinary meaning of the words, the phrase ‘wage and hour . . . law(s)’ refers to laws concerning duration working and/or remuneration received in exchange for work.”  More specifically, the appellate court determined that class claims alleging Southern California Pizza failed to reimburse its employees for travel-related and cellphone expenses are rooted in Sections 2800 and 2802 of the code, which requires employers to reimburse employees for “certain losses or expenditures under specified circumstances,”  and, therefore, such claims did not come within the scope of the wage and hour exclusion because they are not sufficiently related to statutes that traditionally are considered to set out the state’s “wage and hour” protections.

With respect to the underlying class claim that Southern California Pizza failed to include certain information on wage statements, the appellate court found this claim fell within the EPLI policy’s wage and hour exclusion because a potential violation of laws mandating what wage-related information must be contained on wage statements, and housed within the “Payment of Wages” section of California’s labor law, is a violation of a “quintessential wage law.”

This decision is important because it illustrates that, despite the popularity of so-called “wage and hour” exclusions in EPLI and other insurance policies, the exclusions do not bar all claims arising from the employer/employee relationship.  Nor do such exclusions bar coverage for all claims involving so-called “wage and hour” violations.  Rather, only where the claim involves the employee’s actual remuneration received in exchange for work should the exclusion apply to preclude coverage.

Finally, this decision is a reminder that insurers often apply policy exclusions too broadly based only on the exclusion’s label, rather than its actual terms.  Policyholders, therefore, should remain vigilant about reviewing the actual scope and language of any potentially applicable policy exclusion and contacting employment and coverage counsel when it appears that their insurer is not giving the exclusion its reasonable and narrow application.

  • Partner

    Mike is a Legal 500 and Chambers USA-ranked lawyer with more than 25 years of experience litigating insurance disputes and advising clients on insurance coverage matters.

    Mike Levine is a partner in the firm’s Washington, DC ...

  • Partner

    A highly regarded problem-solver, Chris represents businesses and their executives across a broad spectrum of industries, focusing his practice on the defense of complex employment litigation, high-stakes commercial lawsuits ...

  • Associate

    Adriana’s practice focuses on advising policyholders in insurance coverage and reinsurance matters, and other business litigation. Adriana has represented clients in federal and state courts in insurance coverage ...


Subscribe Arrow

Recent Posts





Jump to Page