Insurer Had No Duty To Defend Or Indemnify Claims Based On Unpaid Wages
Granite Outlet, Inc. v. Hartford Casualty Ins. Co., 2016 U.S. Dist. LEXIS 74238 (June 7, 2016)
Categories: Duty to Defend – Employment-Related Practices Exclusion – Penalties
In Granite Outlet, Inc. v. Hartford Casualty Ins. Co., the district court granted a liability insurer’s motion to dismiss with prejudice an action seeking liability insurance benefits for the defense and settlement of two unpaid wage claims.
Two former employees brought claims against Granite Outlet, Inc. for outstanding wages allegedly due, as well as associated penalties and liquidated damages pursuant to California Labor Code sections 203 and 1194.2.
Hartford issued Granite a policy of Business Liability, Employee Benefits, and Umbrella Liability Coverage effective during the relevant time period. The policy’s Business Liability Coverage applied to certain “damages because of ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ …” and was subject to an exclusion for certain “[e]mployment-related practices, policies acts or omissions.” The policy’s Umbrella Liability Coverage was substantively identical in that regard. The policy’s Employer Benefits Liability Coverage applied to certain “‘damages’ because of ‘employee benefits injury’ …”, defined as “injury that arises out of any negligent act, error or omission in the ‘administration’ of your ‘employee benefits program.’” Hartford asserted that the policy terms did not provide any coverage in connection with the wage disputes.
Granite settled both claims and sued Hartford seeking a determination that it had been entitled to a defense, and was entitled to indemnification for the penalties and liquidated damages. Hartford countered with a motion to dismiss, which the district court granted, and the operative complaint was dismissed with prejudice.
With respect to the Business Liability Coverage, the insured argued that the penalties and liquidated damages trigger coverage as “property damage,” because they are the equivalent of money and money is property. Without deciding the merits of that argument, the district court concluded that the employment-related practices exclusion barred coverage in any event, reasoning: “Paying wages for employees, or failing to do so, is employment related. Moreover, both the penalties and liquidated damages associated with the failure to pay wages for employees, is also employment related.” For the same reasons, the district court concluded that the Umbrella Liability Coverage could not apply.
With respect to the Employer Benefits Liability Coverage, the insured did not contend that withheld wages were covered but that the associated penalties and liquidated damages were covered. The district court disagreed primarily because the policy defines “Employee benefits program” as “a formal program or programs of employee benefits maintained in connection with your business or operations, such as but not limited to: group life insurance, group accident or health insurance, profit sharing plans and stock subscription plans, provided that no other than an employee may subscribe to such insurance or plans; and unemployment insurance, social security benefits, workers’ compensation and disability benefits.” Applying the ejusdem generis principle (“particular expressions qualify those which are general”), the court reasoned: “[n]either penalties nor liquidated damages are formal programs, nor do they resemble the examples listed ….”
The district court cited additional reasons for its conclusion that there was no coverage for the penalties and liquidated damages, including that the policy’s definition of “Damages” states that “Damages do not include [f]ines [or] [p]enalties” and, quoting a California Supreme Court case, that the liquidated damages “are in effect a penalty equal to the amount of unpaid … wages.”
As actual wages and related penalties for failure to pay wages are outside the scope of coverage, the court ruled Hartford had no duty to defend or indemnify.
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