EMPLOYMENT CORNER

In a recent decision, a court found in favor of an insurance company (the “Carrier”) of a bankrupt employer (“the Insured”), holding that the Carrier was not required to provide coverage for the judgment issued to the Insured’s former Area Vice Presidents (the “Employees”) due to wage and hour and contract exclusions. The underlying dispute stemmed from allegations of breach of employment contracts that entitled the Employees to certain commissions and bonuses they never received, since their employer, the Insured, experienced financial troubles.

The underlying issue was whether a Claim was first made and first reported within the policy period. The Carrier argued that an email from an employee about the unpaid compensation (which the Insured received early in the policy period) constituted a claim and, thus, needed to be reported to the Carrier before the policy’s expiration. As a result, the Carrier argued that it was not required to pay the judgement because: 1) the Insured failed to provide timely notice of the claim; 2) the Carrier had no duty under any of its policies to indemnify or reimburse the Insured; and 3) any potential coverage was barred by exclusions under the policies. The Employees, on the other hand, argued that the email did not constitute a claim because the email was not a “demand for monetary relief” but rather an attempt to “amicably settle outstanding payments.” 

The Employees argued that their federal lawsuit filed several years after the email, was the first opportunity to report a claim to the Carrier. The court agreed. Based on the evidence presented, the court held that the Insured did not interpret the email as a claim because the Insured intended on paying the requested amount. However, due to financial stress, a claim arose when the Insured could not satisfy the request and the employees filed a formal lawsuit. Despite proper notice of the claim, the court found in favor of the Carrier citing the wage and hour and the breach of contract exclusions. Thus, the Carrier was not required to pay a judgment issued to the Insured’s Employees.