Fewer and fewer companies in California have insurance coverage for “wage and hour” claims, i.e. claims for failure to pay overtime, failure to provide meal and rest periods, and failure to provide accurate itemized wage statements. Many times such coverage is prohibitively expensive or simply unavailable.  Accordingly, if a company in California has an Employment Practices Liability policy, it may have a very broad “wage and hour” exclusion.

Even if your policy has such an exclusion, there still may be hope. A recent unpublished decision by the Ninth Circuit in PHP Insurance Services, Inc. v. Greenwich Insurance Company, Case No. 16-15083, is a reminder that a mere allegation of a covered Employment Practices Wrongful Act may trigger a carrier’s duty to defend even if not asserted as a cause of action. 

In PHP, plaintiffs filed a putative class action.  The gravamen of the suit was misclassification, specifically the failure to pay overtime because plaintiffs were misclassified as exempt employees.  However, the complaint also included allegations that defendant “purposefully [hired] recent immigrant workers to improperly take advantage of their lack of knowledge regarding labor and employment rights” and “required that some employees change their Vietnamese names to American names.”  The complaint also alleged that defendant ran its business “as a taskmaster” and that “employees who were not available to assist customers were later berated by management for neglecting their duties.”

On summary judgment, the trial court found that these allegations reflected potential claims of discrimination and harassment, both of which were expressly included within the policy’s definition of Employment Practices Wrongful Act. The policy at issue stated that the insurer had a duty to defend its insured against “any covered Claim, even if the allegations in such Claim are groundless, false or fraudulent.”  Accordingly, the Court held that it was “not concerned” with the merits of any claim based on the covered allegations, but only that the insured had shown a potential for coverage.  The carrier was unable to identify any exclusion which would conclusive eliminate that potential.  As a result, the trial court determined that the carrier had breached its duty to defend and entered judgment in favor of the insured.

This case serves as a good reminder to always review complaints carefully and not to assume there is no coverage just because the formal causes of action fall within an exclusion.  A detailed analysis of the allegations at issue can pay off in the form of a complete defense of the action.