An employment practice liability policy’s “wage and hour” exclusion did not relieve the insurer of a duty to defend its insured against a class action lawsuit alleging, among other things, that the insured failed to reimburse employees for work-related expenses. (Southern California Pizza Co., LLC v. Certain Underwriters at Lloyd’s, London (2019) 40 Cal.App.5th 140)
Facts
Southern California Pizza Company, LLC (“SCPC”) owns and operates over 250 restaurants. Various employees filed a class action lawsuit against SCPC, alleging that SCPC (1) failed to reimburse its delivery drivers for certain mileage expenses, work travel-related costs and cell phone expenses (Lab. Code §§ 2800, 2802), and (2) failed to include certain statutorily-required information on each wage statement (Lab. Code § 226).
SCPC sought defense and indemnity under an employment practice liability insurance policy issued by Certain Underwriters at Lloyd’s, London (“Underwriters”). The policy’s basic insuring agreement provided in substance that Underwriters would pay loss SCPC was required to pay because of a claim for an employment-related workplace tort not otherwise excluded. The policy contained an endorsement which excluded indemnity coverage for claims based upon “wage and hour” laws, but which provided $250,000 in defense costs for such claims. Underwriters denied indemnity coverage to SCPC for the class action lawsuit, but provided SCPC with $250,000 in defense costs.
SCPC sued Underwriters for breach of contract and bad faith, alleging that Underwriters’ duty to defend SCPC was not limited to the $250,000 sub-limit in the endorsement. The trial court ruled that SCPC had failed to state a claim against Underwriters and thus dismissed SCPC’s lawsuit against Underwriters. SCPC appealed.
Holding
The Court of Appeal reversed, holding that Underwriters’ duty to defend SCPC was not limited to the $250,000 defense cost sub-limit set forth in the endorsement.
According to the appellate court, the employees’ claim that SCPC failed to reimburse business expenses could be deemed a claim for an “employment-related workplace tort” within the meaning of the insuring agreement. The court reasoned that the employees’ claim was based on SCPC’s alleged violation of Labor Code section 2802, which requires employers to indemnify employees for all necessary work expenses. According to the court, an employer’s violation of section 2802 could at least arguably be deemed a “tort.”
Further, the employees’ claim that SCPC failed to reimburse business expenses did not fall within the scope of the policy’s “wage and hour” exclusion. According to the appellate court, the “wage and hour” exclusion only barred coverage for claims based on alleged violation of laws “concerning duration worked and/or remuneration received in exchange for work.” Here, the employees’ claim was premised not on failure to pay wages for work performed, but rather on failure to reimburse for work-related expenses incurred. Thus, the employees’ business expense reimbursement claim against SCPC did not fall within the scope of the “wage and hour” exclusion. Accordingly, Underwriters’ duty to defend SCPC was not limited to the $250,000 sub-limit.
Comment
The appellate court held that the employees’ other claim (i.e., that SCPC failed to include all required information on wage statements) did fall within the scope of the policy’s “wage and hour” exclusion. The court reasoned that the employees’ wage statement claim was based on SCPC’s alleged violation of Labor Code section 226, which requires employers to provide certain written information to employees each time wages are paid. According to the court, that statute is a “quintessential wage law.”
In any event, because the employees’ expense reimbursement claim was not subject to the wage and hour exclusion, the $250,000 defense cost sub-limit did not apply.