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The Law

Carrier Must Defend Against Class Action from Underpaid Au Pairs

Despite an exclusion for wage-related claims, an insurer will have to defend an insured in a class action suit for negligent misrepresentation.
By: | August 30, 2018 • 2 min read

Cultural Care Inc. is a U.S. State Department-designated sponsor for au pairs — a type of live-in nanny who watches a host family’s children and performs other housework duties. CCI is responsible for hiring and placing foreign national au pairs with host families in the U.S. and helps set the wages and rates of compensation for the au pairs.

A class action was brought against CCI when its au pairs discovered they were being sorely underpaid. The suit alleged CCI conspired with host families to deliberately pay the au pairs below the market rate, violating federal and state minimum wage laws. The au pairs said their sponsor had fixed rates at $195.75 per 45-hour work week — well below federal and several state minimum wages.

CCI turned to AXA Insurance Company, with which it held a liability insurance policy. It reported the case in March 2015. The sponsor pointed to a clause in the policy that stated AXA agreed to “pay on behalf of the Insured those sums that the Insured becomes legally obligated to pay as Damages because of a negligent act or negligent omission committed by the Insured.”

But AXA denied coverage through two letters sent in April and July 2015.

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AXA referred to an exclusion that specifically said any suit or claim based on federal laws and employee wages was not covered under their policy.

CCI argued AXA was breaching the policy and had a duty to defend based on a negligent misrepresentation claim brought against CCI by the au pairs.

The court was tasked with deciding if AXA’s duty to defend was triggered by a negligent misrepresentation claim or the federal wage issue.

It found that “the negligent misrepresentation count in the [underlying suit] alleges that CCI failed to exercise due care in relaying false information about wages to the au pairs, an act it committed in the conduct of its professional services — or at the very least, in the conduct of ‘all operations necessary’ to its business.” Therefore, the court said, “this claim triggers AXA’s duty to defend CCI against the … suit.”

Scorecard: AXA Insurance will have to foot the bill in the underlying class action suit CCI faces with its au pair clientele.

Takeaway: While an exclusion may exist for an aspect of an allegation brought against an insured, insurers might wish to consider which part of the allegation triggered its policy in the first place. Sometimes the allegation triggering the policy will outweigh an exclusion if it’s not specific.

Autumn Heisler is the digital producer and a staff writer at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2018 Risk All Stars

Stop Mitigating Risk. Start Conquering It Like These 2018 Risk All Stars

The concept of risk mastery and ownership, as displayed by the 2018 Risk All Stars, includes not simply seeking to control outcomes but taking full responsibility for them.
By: | September 14, 2018 • 3 min read

People talk a lot about how risk managers can get a seat at the table. The discussion implies that the risk manager is an outsider, striving to get the ear or the attention of an insider, the CEO or CFO.

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But there are risk managers who go about things in a different way. And the 2018 Risk All Stars are prime examples of that.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Goodyear’s Craig Melnick had only been with the global tire maker a few months when Hurricane Harvey dumped a record amount of rainfall on Houston.

Brilliant communication between Melnick and his new teammates gave him timely and valuable updates on the condition of manufacturing locations. Melnick remained in Akron, mastering the situation by moving inventory out of the storm’s path and making sure remediation crews were lined up ahead of time to give Goodyear its best leg up once the storm passed and the flood waters receded.

Goodyear’s resiliency in the face of the storm gave it credibility when it went to the insurance markets later that year for renewals. And here is where we hear a key phrase, produced by Kevin Garvey, one of Goodyear’s brokers at Aon.

“The markets always appreciate a risk manager who demonstrates ownership,” Garvey said, in what may be something of an understatement.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Dianne Howard, a 2018 Risk All Star and the director of benefits and risk management for the Palm Beach County School District, achieved ownership of $50 million in property storm exposures for the district.

With FEMA saying it wouldn’t pay again for district storm losses it had already paid for, Howard went to the London markets and was successful in getting coverage. She also hammered out a deal in London that would partially reimburse the district if it suffered a mass shooting and needed to demolish a building, like what happened at Sandy Hook in Connecticut.

2018 Risk All Star Jim Cunningham was well-versed enough to know what traditional risk management theories would say when hospitality workers were suffering too many kitchen cuts. “Put a cut-prevention plan in place,” is the traditional wisdom.

But Cunningham, the vice president of risk management for the gaming company Pinnacle Entertainment, wasn’t satisfied with what looked to him like a Band-Aid approach.

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Instead, he used predictive analytics, depending on his own team to assemble company-specific data, to determine which safety measures should be used company wide. The result? Claims frequency at the company dropped 60 percent in the first year of his program.

Alumine Bellone, a 2018 Risk All Star and the vice president of risk management for Ardent Health Services, faced an overwhelming task: Create a uniform risk management program when her hospital group grew from 14 hospitals in three states to 31 hospitals in seven.

Bellone owned the situation by visiting each facility right before the acquisition and again right after, to make sure each caregiving population was ready to integrate into a standardized risk management system.

After consolidating insurance policies, Bellone achieved $893,000 in synergies.

In each of these cases, and in more on the following pages, we see examples of risk managers who weren’t just knocking on the door; they were owning the room. &

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Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, clarity of vision and passion.

See the complete list of 2018 Risk All Stars.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]