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Business Expense Reimbursement Not Limited by EPLI "Wage-and-Hour" Exclusion



On November 14, 2016, a federal judge in California denied summary judgment to Hanover Insurance Co. (Hanover), finding that class claims were alleged to be failure to reimburse reasonable business expenses were not excluded by "wage-and-hour" exclusion contained in EPLI policies issued by Hanover. The lawsuit, brought by a student of the Bellus Academy beauty school, alleged that the Poway Academy (the owner of Bellus) and Beauty Boutique, Inc. (BBI) (operator of two other schools under the "Bellus" name) failed to Compensate students for working on paying clients at an onsite salon and also failed to reimburse them for out-of-pocket costs to purchase necessary supplies. The lawsuit alleges a variety of wage-related claims. The lawsuit also alleged that the schools failed to teach necessary business expenses in violation of Section 2802 of the California Labor Code.

Hanover initially agreed to defend the schools under a reservation of rights, but then sued the schools for a finding that coverage was barred for all of the claims against them. The court found, however, that while the claims were a failure to pay minimum wages and overtime would be barred by the policies "wage-and-hour" exclusions, Section 2802 is not a wage-and-hour law. Although the statute functions to prevent employers from offloading expenses onto their employees, it also has other functions, such as providing indemnification for third-party suits. Thus, the court found that Section 2802 was not a wage-and-hour law, per se, and thus the alleged failure to claim reimbursement was not within the scope of the policies "wage-and-hour" exclusions.

The Poway Academy decision is a significant reminder for employers facing "wage and hour" claims that each claim must be assessed on its own merits, and that the more presence of a "wage-and-hour" claim does. not necessarily that the entire claim or lawsuit is excluded from coverage by wage-and-hour exclusion. In fact, the case was in Poway Academy the presence of just one potentially covered claim required to defend the entire litigation (subject, of course, to equitable allocation among covered and non-covered claims

The insurance coverage attorneys at Hunton & Williams LLP are available to help employers and other policyholders secure the maximum available coverage, including defense coverage under duty to defend policies.


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