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Expense reimbursement not limited by exclusion in EPLI policy

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Wage-and-hour exclusions within employment practices liability insurance policies may not apply to expense reimbursement.

Because of this, an insurer must also first prove defense costs are not applicable to this claim before it can successfully seek reimbursement for this expense, says a federal court, in denying Hanover Insurance Co.’s motion for summary judgment. 

Worcester, Massachusetts-based Hanover had issued EPLI policies to Poway, California-based Poway Academy, which operates the Bellus Academy beauty college in Poway, and Beauty Boutique Inc., which operates two beauty colleges in National City, California, and El Cajon, California, according to a ruling by the U.S. District Court in San Diego in Hanover Insurance Co. v. Poway Academy of Hair Design Inc. and Beauty Boutique Inc. The ruling, which was issued Nov 14, was publicized this week.

The Hanover policies included a wage-and-hour exclusion, according to the ruling. Both Poway Academy and Beauty Boutique are defendants in pending class action litigation in state court in San Diego. Plaintiff Stephanie Hicks said the defendants failed to reimburse reasonable business expenses, among other charges, including failure to provide meal and rest periods or compensation.

Hanover filed a motion seeking a determination it has no duty to indemnify all the claims because they fall within the EPLI policies’ wage-and-hour exclusions, as well as reimbursement for $90,600 in defense costs.

The defendants said while some of the claims may have fallen within the exclusion, Hanover could not deny any potential for coverage because the business reimbursement expense may not have been covered under the exclusion.

The California statute requires an employer to indemnify employees “for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties,” according to the ruling.
 “The court agrees with the defendants” that the state statute providing for business reimbursement expenses “is not a wage and hour law,” said the ruling. 

Hanover is also obligated to pay defense costs, said the ruling. Ms. Hicks had sought reimbursement for educational materials she was provided on her first day of school, said the ruling.

Because “there are claims that are not even potentially covered, like those that fall directly within the wage and hour exclusions, and there is one claim that is potentially covered … plaintiff carries the burden of showing, by a preponderance of the evidence, that the defense costs it seeks to recover are solely allocated to claims that are not even potentially covered,” said the court, in denying the insurer’s motion for summary judgment.