EMPLOYMENT CORNER

A federal court recently affirmed a lower court’s decision that an Insurance Carrier (the “Carrier”) had no duty to defend a construction company (the “Company”) in two class action lawsuits (the “Lawsuits”) brought against the Company and its board of directors under the Fiduciary Liability section of the policy. The Company sought coverage for claims stemming from its alleged violations of wage payment and collection laws and a breach of fiduciary duty under the Employee Retirement Income Security Act (ERISA).

In denying coverage, the Carrier argued that the claims in the Lawsuits were excluded by the policy because they related to allegations of wage and hour violations, which triggered the policy’s specific exclusions for claims “based upon, arising from, or in any way related to” wage and hour violations. The Company argued that the Carrier had a duty to defend under the Fiduciary Liability section of the policy because the claims related to fiduciary liability under ERISA and were unrelated to wage and hour violations, and thus, bypassed the policy’s wage and hour exclusion.

Ultimately, the court ruled in the Carrier’s favor holding that the claims in the Lawsuits were related to wage and hour violations and triggered the policy’s exclusion. In affirming the lower court’s decision, the court agreed that the exclusion applied because the breach of fiduciary duty claims was in some way related to the Company allegedly underpaying its employees. The court read the exclusion language “in any way related to” broadly, interpreting the exclusion to include fiduciary breaches connected to wage and hour violations. This case underscores the importance of narrowing exclusionary language, when possible, due to some courts’ inclination to interpret it broadly.