Carrier Must Defend Against Class Action from Underpaid Au Pairs
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.
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.