California Court Holds that “Wage and Hour Law” Limitations on Coverage Unambiguously Applied to Labor Code Violations

Applying California law, a federal district court has held that a wage and hour endorsement limited the coverage available for two class action lawsuits to $25,000 in defense costs.  Houston Cas. Co v. Great American Chicken Corp., Inc., 2019 WL 3886484 (C.D. Cal. Aug. 12, 2019).

The insurer issued an employment practices liability policy to the insured, which included an endorsement that extended coverage under the policy for claims arising from violations of federal, state or local wage and hour laws regulations concerning monetary or non-monetary compensation or benefits owed to employees based upon misclassification of their job status, title, or duties.  Such coverage, however, was limited to $25,000 in defense costs only.

The insured sought coverage for a putative class action lawsuit involving the insured’s alleged failure to provide employees with meal and rest periods, to reimburse business expenses, and to pay minimum and overtime wages.  The insurer took the position that the suit fell within the coverage provided by the endorsement, such that coverage was available but only for defense costs up to $25,000.

In the coverage litigation that followed, the court agreed with the insurer and found that coverage was limited to $25,000 in defense costs because the claim alleged violations of federal, state, or local wage and hour laws or regulations.  In so holding, the court rejected the insured’s argument that the term “wage and hour law” was ambiguous.  The court concluded that the phrase applied unambiguously to include the various violations of the California code as asserted in the class action complaint.  Specifically, the court found that California Labor Code §§ 226, 1174, and 2802(a) all constituted wage and hour laws.  The court found that these sections were frequently invoked in actions against employers that allegedly underpaid their employees and that these laws prevent employers from shifting expenses onto their employees, whether by wage theft or by failing to reimburse them for business costs.