Employment Practices Liability Insurance Evolution and by bluffdaddy

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									        Employment Practices
Liability Insurance: Evolution
and Application to Workplace
                    Exposures

       Presented by:
    Todd A. Roberts




     September 15, 2008
STARBUCKS
 Employer must pay over $100M to
 120,000 current and former employees
 - for tip pool money that the coffee
 retailer used to compensate shift
 supervisors in violation of California
 State labor laws (Superior Court of the
 State of California, March 2008).
WAL-MART
 A class of 1.6 million current and former
 female employees allege employer
 frequently pays females less than male
 counterparts for comparable jobs and
 bypasses women for key promotions -
 certified as a class action.
 (9th Cir, 2004-ongoing)
MORGAN STANLEY
 EEOC settlement for $54M on behalf of
 a class of female officers and women
 eligible for officer promotion - sex
 discrimination lawsuit with respect to
 promotion, compensation and the
 terms, conditions, and privileges of
 employment (2004).
ABERCROMBIE & FITCH
 Employer paid $40M settlement to over
 10,000 class members including Latino,
 African-American, Asian-American, and
 female applicants and employees who
 charged the company engaged in
 discrimination based on race and
 gender.
 (US Dist Ct for the Northern Dist of CA, 2005)
HOME DEPOT
 Employer to pay $5.5M to resolve class
 discrimination lawsuit in Colorado -
 alleging hostile work environment
 based on gender, race, and national
 origin, and the company retaliated
 against employees who complained
 about discrimination.
 (US Dist Ct for Colorado, 2004).
 $65M sex discrimination suit from 1998.
KROGER (grocer)
 Employer agreed to $16M settlement
 relating to class action lawsuit filed by
 twelve African-American Kroger
 employees who alleged they were
 discriminated against based on race.
 (US Dist Ct for the Western Dist of Kentucky, 2008)
TACO BELL
 Employer must pay about 1,000 former
 employees a $1.5M settlement of
 lawsuit that alleged employer violated
 labor laws - wage and hour law
 violations - making employees work off-
 the-clock or not paying for meal breaks.
 (Oregon, 2003)
WAL-MART
 After discovering possible mistakes in
  its formulas for overtime during a
  regular internal review, Wal-Mart
  agreed to pay $33M in back wages to
  thousands of employees.
 The U.S. Labor Dept. performed a
  national review of all Wal-Mart stores
  over a two-year period before the
  settlement was approved by a federal
  judge in the U.S. District Court for
  western Arkansas.
             EXAMPLES OF EARLY EMPLOYMENT
             PRACTICES LIABILITY COVERAGE

                                                                             Employment- related misrepresentation
                                                                             or defamation

                                                                                       Employment- related invasion of
                                                                 Many                  privacy
                                                                 Others
   Wrongful dismissal, discharge                                                       Employment- related infliction of
   or termination of employment                                                        emotional distress

      Constructive termination of
      employment                                                                           Unlawful retaliation


  Wrongful failure to hire or promote
  wrongful discipline or demotion                                                        Unlawful discrimination of any
                                                                                         type
Wrongful failure to create, apply or enforce
any employment-related policy or procedure
                                                                                     Unlawful sexual or other prohibited
                                                                                     harassment
                      Wrongful failure to grant tenure
                                                                          Violation of the Family Medical
                                                                          Leave Act
                Breach of any oral or written contract, creating or
                continuing an employment relationship
             EXAMPLES OF EARLY EMPLOYMENT
             PRACTICES LIABILITY COVERAGE
             Exclusion for Acts Deemed
             Uninsurable by Law, Claims-made
             and Reported Restriction, and the                               Employment- related misrepresentation
             cost of complying with ADA                                      or defamation
             required physical improvements,
             and fringe benefits.                                                      Employment- related invasion of
                                                                                       privacy
                                                                 Many
   Wrongful dismissal, discharge                                 Others                Employment- related infliction of
   or termination of employment                                                        emotional distress

      Constructive termination of
      employment                                                                           Unlawful retaliation


  Wrongful failure to hire or promote
  wrongful discipline or demotion                                                        Unlawful discrimination of any
                                                                                         type
Wrongful failure to create, apply or enforce
any employment-related policy or procedure
                                                                                     Unlawful sexual or other prohibited
                                                                                     harassment
                      Wrongful failure to grant tenure
                                                                          Violation of the Family Medical
                                                                          Leave Act
                Breach of any oral or written contract, creating or
                continuing an employment relationship
PROBLEMATIC LANGUAGE
 Breach of employment-related contract;
 Violation of employment laws;
 Failure of the insured to create,
  implement or enforce adequate or
  consistent employment-related
  practices, policies or procedures;
 Employment-related misrepresentation.
EXAMPLE #1
 Dot.Com Executive hired at a Salary of
  $250,000 a year for three years.
 Contract requires payment of
  continuation pay until the end of the
  contract even if employment is
  terminated, unless based on a criminal
  act or act of moral turpitude.
 Is back and front-pay covered?
EXAMPLE #2
    Action for sexual harassment, retaliation
     for reporting OSHA violations;
    Applies equally to other forms of
     employment harassment or
     discrimination.
SEXUAL HARASSMENT …
… Now defined to mean: “unwelcome
 sexual advances and/or request for
 sexual favors and/or other verbal or
 physical conduct of a sexual nature
 that: (1) are made a condition of
 employment and/or (2) are used as a
 basis for employment decisions and/or
 (3) create a work environment that
 interferes with performance or creates
 an intimidating, hostile or offensive
 work environment.”
COVERED OR NOT?
 Of course the claim is within basic coverage,
  but…there are multiple coverage issues.
 From a liability perspective, an employer may
  defend the case on the grounds that the
  conduct was outside the course and scope of
  employment.
 (Farmers Insurance Group v. County of Santa
  Clara (1995) 11 Cal.4th 992)
      Sexual harassment outside the scope of
       employment;
      No vicarious liability for malicious or tortious
       conduct if employee substantially deviates from
       employment duties for personal purposes.
IMPACT ON COVERAGE
 May mean no coverage for otherwise insured employee,
  since acts outside the scope of employment are not
  conducted in the capacity of an “Insured” person.
 Sexual harassment and other forms of discrimination in
  employment that violate a fundamental public policy are
  uninsurable in many states as violative of law. (Coit
  Drapery Cleaners v. Sequoia Insurance Company (1993)
  14 Cal.App.4th 1595 [Insurance Code Section 533 bars
  coverage for sexual harassment]; B&E Convalescent
  Center v. State Compensation Insurance Fund (1992) 8
  Cal.App.4th 78; see also, Downey Venture v. LMI
  Insurance Company (1998) 66 Cal.App.4th 478.)
EXAMPLE #3
 Employee of Professional Sports
  Franchise is terminated for poor
  performance.
 He thinks (or just claims) he is
  terminated because he is old, which
  under the law, means he is 40 or over.
 During his Exit interview, he is offered a
  six month severance package worth
  about $75,000
EXCEPTION FROM THE DEFINITION
OF COVERED “LOSS”-OLD LANGUAGE
 TVN Entertainment Corp. v. General Star
  Indemnity Co. (9th Cir. 2003) 59 Fed.Appx. 211)
 Does EPL policy provide coverage for an
  arbitration award of $13M based on finding a
  breach of express written contract where basis
  of award was loss of stock options?
 Industry Response
     Expressly except from the definition of “loss” with
      greater specificity to accept such things as vested
      and non-vested stock options, retirement benefits,
      severance pay, bonuses, perquisites, commissions,
      fringe benefits, vacation days, sick days, criminal
      fines or penalties.
     Example of how the “severance pay” exception may
      impact claims determination.
SEVERANCE PAY
 Current policies except from the
 definition of LOSS, with much greater
 specificity, such things as severance
 pay, fringe benefits, penalties,
 insurance lan benefits, amounts
 awarded pursuant to a collective
 bargaining agreement, vacation days,
 commissions, stock options (vested or
 non-vested), bonuses, sick days…..
… SEVERANCE PAY
   Acradyne, Inc. v. Travelers Casualty & Surety
    Company of America
    (9th Cir. January 10, 2008) Case No. CV-04-00362
       Policy excludes from definition of damages
        “severance pay… or any agreement, policy or
        procedure providing for payment in the event
        of separation from employment…”
       “Severance pay” is triggered only by
        succession of employment, and is ordinarily
        calibrated to the length of employment and
        reflects a type of compensation earned while
        employed, although not paid until afterwards.
        Here, insured’s contract entitled him to be paid
        for six years so long as he was not terminated
        for cause within that time period so there was
        an inverse correlation between the length of
        his employment and the continuation pay.
EXAMPLE # 4
 Network Engineer is paid $75,000
  annually and is the guy or gal
  responsible for maintaining the
  computer network.
 To accomplish this, he or she is literally
  on call 24/7/365.
 The Network Engineer is classified as
  “Exempt” from the OT laws.
THE WAGE & HOUR CONUNDRUM

 The White Hot Area of Potential
  Employer Liability
     Wage & Hour disputes including
      improper “exempt” classification;
     Missed meal and rest breaks;
     Improper accounting at termination
      giving rise to claims for continuation pay
      and penalties.
PROBLEMATIC LANGUAGE
REVISTED
 Breach of employment-related contract;
 Violation of employment laws;
 Failure of the insured to create,
  implement or enforce adequate or
  consistent employment-related
  practices, policies or procedures;
 Employment-related misrepresentation.
PROBLEMATIC CASE
 SWH Corp. v. Select Insurance Company
 (Cal.Ct.App. 2006) 2006 Cal.App.Unpub. LEXIS 8694)
     Court finds exclusion extending to
      claims involving the Fair Labor
      Standards Act was ambiguous because
      the “state law” applied to “similar
      provisions” of the laws and not to
      “similar laws” and therefore was
      deemed ambiguous.
     Finds that Restitution in the form of
      unpaid OT is not restitution at all if
      awarded on some other basis
RESTITUTION ≠ DAMAGES
 California Supreme Court recognizes that the
  only monetary relief available for the violation
  of the UCL (Business & Professions Code
  section 17200) is for restitution (aka
  disgorgement) and that such orders do not
  award “damages” within the meaning of the
  typical insurance policy. (Bank of the West v.
  Superior Court (1992) 2 Cal.4th 1254)
 The court’s reasoning is sound: it would
  violate fundamental public policy to allow an
  insured to keep their fruits of their wrongful
  acquisition of property belonging to another.
THE FAILURE TO PAY OT, REST AND MEAL
BREAKS IS AKIN TO WRONGFUL
ACQUISITION TORT
  Cortez v. Purolator Air Filtration
   Products (2000) 23 Cal.4th 163
    California Supreme Court extends UCL to
     claims by employees misclassified as
     “exempt.”
    Court finds that wages that were
     “earned” became the property of the
     employee immediately and there was no
     fundamental distinction between a
     defendant who wrongfully took property
     belonging to another and an employer
     who wrongfully withheld earned but
     unpaid wages.
WAGE & HOUR COVERAGE
DEFENSES
 Payless Shoe Source, Inc. v. Travelers Cos.
  (August 4, 2008) 2008 U.S.Dist. LEXIS 59746
     [U.S. District Court for the District of Kansas
      enforces policy exclusion extending to an actual
      or alleged violation of the Fair Labor Standards
      Act or similar provision of any federal, state or
      local, statutory or common-law]
 Farmers Automobile Association v. St. Paul
  Mercury Insurance Company
  (7th Cir. 2007) 482 F.3d 976
     Court concludes that Illinois statutory overtime
      pay provision is similar to FLSA. Court analyzes
      the same exclusion used in the Payless Shoe
      Source case and finds it unambiguous as a
      matter of law.
OTHER WAGE & HOUR
COVERAGE DEFENSES
 Oktibbeha County School District v. Coregis Insurance
  Company (N.D.Miss. 2001) 173 F.Supp. 541
      Policy defined “wrongful act” to mean any act, error or
       omission of an Insured constituting a breach of a duty
       imposed by law or breach of an Employment Contract.
      The court finds that the school district has not suffered
       a Loss in accordance with the policy because the school
       district had a duty to pay overtime compensation
       because of the statutory requirements of the FLSA.
      The court also finds that policy exclusion extending to
       any claim arising out of any Insured gaining profit,
       remuneration or advantage to which the Insured is not
       entitled specifically applies
 Noxubee County School District v. United National
  Insurance Company (Mss. 2004) 883 So.2d 1159
      School District’s failure to comply with the Fair Labor
       Standards act is neither a “wrongful act” or “wrongful
       employment act.” Additionally, the policy excludes
       coverage for back wages, overtime, or future wages.
INDUSTRY RESPONSE
 Carriers are using wage and hour
  coverage as a marketing tool.
 Multiple carriers are now offering wage
  and hour coverage, but only for a
  defense with a lower sub-limit in the
  range between $100,000 to $500,000.
OTHER DEVELOPMENTS

 1-800-Hotlines with Access to
  Employment Counselors;
 Audit of Company Policies and
  Procedures
 Some Policies are Written as Defense
  Only

								
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