Wage and Hour Exclusion Barred Coverage for Underlying Wage and Hour Class Action Asserting Claims for Misrepresentation, California Labor Code Violations and Unfair Competition

Wage and Hour Exclusion Barred Coverage for Underlying Wage and Hour Class Action Asserting Claims for Misrepresentation, California Labor Code Violations and Unfair Competition

Admiral Ins. Co. v Kay Automotive Distributors, Inc., 2015 U.S. Dist. LEXIS 11357 (C.D. Cal. Jan. 29, 2015), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance].

In Admiral, the Central District of California held that a wage and hour exclusion contained in an EPL policy barred coverage for an underlying wage and hour action that included misrepresentation and unfair competition claims.    

Admiral involved an underlying action against the insured that asserted causes of action for: (1) misrepresentations, (2) failure to pay minimum, regular, and overtime wages, (3) failure to provide mandated meal periods, (4) failure to provide mandated rest periods, (5) failure to make payments within the required time, (6) failure to provide itemized wage statements, (7) failure to maintain adequate records as to wages and hours worked, (8) failure to reimburse business expenses, (9) violation of California’s unfair competition statute, and (10) a claim under the Private Attorneys General Act (“PAGA”).  The insured tendered the claim to its EPL carrier, which had issued a policy with an exclusion for all claims “based upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way involving any federal, state, local or foreign wage and hour laws, including, without limitation, the Fair Labor Standards Act. . . .”  The carrier denied coverage for the lawsuit based on that exclusion, and the insured sued.  The parties filed cross-motions for summary judgment, and the court granted the carrier’s motion and denied the motion filed by the insured.  

The district court rejected the insured’s arguments that the exclusion was intended to refer only to wage and hour laws that were “similar” to the FLSA.  According to the district court, the contract’s plain language referred to four possible sources of law dealing with wages and hours, and that the FLSA was only one of those sources.  Based on the exclusion’s reference to state wage and hour laws, the district court concluded that the exclusion encompasses claims under sections of the California Labor Code dealing with pay and hours of work, regardless of whether those sections were similar to any provision of the FLSA.  The court further noted that the exclusion did not only bar claims directly authorized by wage and hour laws themselves, but also claims “based upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way involving” such laws.  Based on that fact, the court held that the exclusion eliminated coverage for all causes of action against the insured, including the misrepresentation, unfair competition and PAGA claims.

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