The United States District Court for the District of Colorado, applying Massachusetts law, has held that an insurer had a duty to defend an entire suit against an au pair sponsor because the negligent misrepresentation claim asserted in that suit fell within the scope of the policy’s insuring agreement and could stand independent from other claims that were excluded from coverage by a Fair Labor Standards Act (FLSA) exclusion and an intentional conduct exclusion. Cultural Care, Inc. v. AXA Ins. Co., 2018 WL 3008686 (D. Colo. June 15, 2018).
A number of au pairs brought a class action alleging the au pair sponsor, along with other sponsors, had conspired to set au pair wages below market rate and below the price floor authorized by the FLSA in violation of federal and state minimum wage laws, racketeering, tort, and consumer protection laws. The au pairs also asserted negligent misrepresentation claims against the sponsors, alleging that they had misinformed them that they could not ask their families to pay them above the price floor. The au pair sponsor’s professional liability insurer denied coverage for the lawsuit, and the sponsor initiated coverage litigation.
On cross-motions for summary judgment, the court found in favor of the au pair sponsor. The court held that the negligent misrepresentation claim triggered a duty to defend, and under Massachusetts law, the insurer had a duty to defend the entire suit.
Further, the court held that an exclusion barring coverage for any claim or suit based upon or arising out of any violation of the FLSA or similar law did not bar coverage for the negligent misrepresentation claim. In so holding, the court rejected the insurer’s argument that the exclusion applied because the “gravamen” of the suit concerned alleged violations of the FLSA or similar wage laws, concluding instead that the exclusion eliminated the duty to defend only if the negligent misrepresentation claim itself arose out of a violation of the FLSA. Applying a “but for” test, the court concluded that there was a basis for the negligent misrepresentation claim separate and apart from the alleged FLSA violation, and therefore it did not “arise from” a FLSA violation. Therefore, the FLSA exclusion did not eliminate the duty to defend.
For similar reasons, the court held that an intentional conduct exclusion also did not preclude all potential coverage.