On February 29, 2016, Judge Dale S. Fischer of the Central District of California dismissed with prejudice a coverage action filed against Troutman Sanders' client, Greenwich Insurance Company, in connection with Greenwich's denial of coverage for four underlying wage and hour lawsuits (including a consolidated class action lawsuit) brought against a California employer in Los Angeles County Superior Court. The court held that the EPL policies issued by Greenwich did not afford coverage for the wage and hour claims at issue because the California Labor Code violations alleged in the underlying lawsuits did not fall within the EPL policies' definition of "Wrongful Employment Act."
The underlying lawsuits alleged claims against the employer for unpaid overtime (under Labor Code §§ 510, 1194 and/or 1199), lost meal periods and rest periods (under Labor Code § 226.7), failure to provide itemized wage statements (under Labor Code § 226(a)), failure to provide wages due on termination (under Labor Code § 203), and unfair competition (under Cal. Bus. & Prof. Code § 17200 et seq.). The employer sought coverage for the underlying lawsuits under EPL policies issued by Greenwich. Greenwich denied coverage for the underlying lawsuits on several grounds, including on the ground that none of the claims asserted in the underlying lawsuits fell within any of the 13 enumerated employment-related offenses covered under the EPL policies' definition of "Wrongful Employment Act." The employer then sued Greenwich, asserting claims for declaratory relief, breach of contract and bad faith.
In the coverage action, Greenwich filed a motion to dismiss based on the sole issue that the claims asserted in the underlying cases failed to allege a "Wrongful Employment Act" as defined under the EPL policies and, thus, did not fall within the scope of the policies' insuring agreement. The employer argued, among other things, that complying with the California Labor Code is an implied contractual duty taken on by employers in California, and that the allegations that an insured has violated the California Labor Code constitute a "breach of written or oral employment contract or implied employment contract," which is one of the enumerated Wrongful Employment Acts in the Greenwich policy. The employer also argued that the wage and hour lawsuit alleged "failure to enforce employment-related policies and procedures relating to any Wrongful Employment Act," which was another enumerated act in the definition.
The court disagreed, finding that the Labor Code claims in the underlying actions are not contractual claims, but instead involved statutory obligations that arose by operation of law once an employer-employee relationship was created. The court stated that "[w]hile it may be true that the employees understood that the Labor Code would be followed, that is because the State of California requires it, not because it was agreed to by contract." Accordingly, there was no Wrongful Employment Act (or failure to enforce policies relating to a Wrongful Employment Act) alleged, and the court granted Greenwich's motion to dismiss with prejudice and entered judgment in favor of Greenwich, including awarding Greenwich its costs as the prevailing party.
Jennifer Mathis from Troutman Sanders’ San Francisco Office and Binh Pham from Troutman Sanders’ Orange County Office represent Greenwich.
A copy of the order can be found here.
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