Coverage for Wages Claim Denied Under Labor Professional Liability Policy

When an employer received a wage and hour suit from a former employee, it contacted its insurer for coverage.
By: | June 11, 2019

When Francisco Cerritos was terminated from employment at United Farm Workers of America (UFW), Cerritos’ coworkers resorted to protesting and picketing for his reinstatement.

But this was against employee policy, and UFW filed suit for breach of contract against Cerritos, asserting that this picketing “violated a ‘No Strike Clause’ of the collective bargaining agreement between [UFW] and La Union [a California agriculture labor union].”

Cerritos responded with a letter of complaint claiming UFW misclassified him as an exempt employee. He alleged seven complaints, among which were failure to pay overtime wages, failure to pay wage upon termination, wrongful discharge and more.

UFW held a labor professional liability insurance policy through Hudson Insurance Company. The policy included language surrounding “Wrongful Act,” “Wrongful Offense” and “Wrongful Employment Practice.” It covered “wrongful dismissal, discharge or termination (either actual or constructive) of employment, including breach of any implied contract.”

So when Cerritos filed his complaint, UFW contacted Hudson.

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The insurer, however, responded that “six of the seven causes of Action … do not allege a Wrongful Employment Practice as defined in the policy,” but “the fifth Cause of Action of the Cerritos Complaint — Wrongful Discharge — appear[ed] to meet the policy definition of Wrongful Employment Practice.”

It agreed to provide defense subject to a reservation of rights.

When Cerritos amended his complaint, however, Hudson indicated its belief that “[n]o Wrongful Act or Wrongful Offense … [was] alleged in the first amended … complaint.”

Meanwhile, the underlying Cerritos v. UFW suit was settled, with the court awarding $1,120,489 against UFW. An additional $772,394 was awarded in attorney fees and costs. Hudson denied all obligation for coverage and payment of defense, citing that the monies paid were for wages owed and not for any alleged “wrongful act.”

UFW countered with a breach of contract complaint against Hudson.

Hudson argued there was no obligation “because coverage was precluded by the applicable insuring agreements, definitions, conditions, limitations and exclusions of Hudson’s policy and/or by public policy or provisions of law,” and the claims presented against UFW were not covered losses. The parties filed cross-motions for summary judgment.

Ultimately, the court decided in Hudson’s favor.

Scorecard: Hudson Insurance Company is not responsible for the underlying wage and hour suit.

Takeaway: Employee termination can be a tricky time, especially if the employee resorts to legal means. Review employment practices and policies to ensure best parameters exist around such actions. &

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

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The R&I Editorial Team can be reached at [email protected]