Court Rules Insurance Did Not Apply to Wage Claims

When employers are sued for breaking wage and hour laws, they face both the high costs of defending themselves in litigation, plus potentially crippling damages awards to the employees. Some employers believe that if they purchase Employment Practices Liability Insurance (“EPLI”) or other kinds of business liability insurance, that their insurance company will pick up the tab.  Not so, for a California employer who was recently sued in a class action lawsuit that alleged it didn’t pay its employees for not paying overtime, minimum wage, and for meals and rest breaks as required by California law and the federal Fair Labor Standards Act.

The Ninth Circuit Court of Appeals held last week in U.S. Telepacific Corp. v. U.S. Specialty Insurance Company, 2020 WL 3265238 (9th Cir. June 17, 2020), that the employer was not entitled to either defense costs or payment of the employees’ damages under its insurance policy.  This leaves the employer on the hook to pay its lawyers out of its own pocket, as well as any damages that the employees recover in the lawsuit.  The Ninth Circuit court focused on the language of the insurance policy itself, which did not include wage claims as “covered” matters.

While this case does not govern in New Mexico, it provides a very important lesson to all employers.  While EPLI coverage is important and can provide both legal costs and payment of various employment claims, not all claims are covered. The language of each insurance policy is critical, and New Mexico courts will examine the policy language carefully to determine whether there is insurance coverage for a disputed claim.  Wage and hour claims are often excluded from these policies because they are so expensive.  The bottom line: employers should make sure they comply with all wage and hour laws, and if they do not, the risk may be on them.

Buchanan Law Firm represents employees and counsels employers on wage and hour matters.  If you have questions about your rights or obligations under wage and hour rules, call us at 505-900-3559.