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Tokio Marine unit not obligated to indemnify telecom

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Tokio Marine

A Tokio Marine Holdings Inc. unit is not obligated to advance defense funds nor indemnify a telecommunications company in wage and hour litigation because these are not covered under its directors and officers liability insurance policy, a federal appeals court said in affirming a lower court ruling.

When two former employees of Los Angeles-based U.S. TelePacific Corp., which does business as TPx Communications, filed wage and hour putative class-action lawsuits against the company, Tokio Marine unit U.S. Specialty Insurance Co. denied coverage and refused to advance TPx defense costs under its D&O liability policy, according to Wednesday’s ruling by the 9th U.S. Circuit Court of Appeals in U.S. TelePacific Corp, aka TPX Communications v. U.S. Specialty Insurance Co.

TPx sued the insurer in U.S. District Court in Los Angeles. The court ruled in Specialty’s favor, and the decision was affirmed by a unanimous three-judge appeals court panel.
The district court did not err when it concluded coverage under the policy was barred by an exclusion for any claim alleging violation of the Fair Labor Standards Act or similar laws, the panel said.

As the district court explained, the underlying lawsuit alleged violations of California labor code provisions that are similar to FLSA provisions and regulations concerning overtime pay, minimum wage, and meal and rest breaks.

Another exclusion barred coverage for all wage and hour causes of action in the underlying lawsuit, the ruling said.

The panel also agreed with the lower court that the policy’s “loss” definition precluded coverage for TPx’s alleged failure to pay in a timely manner wages upon termination. 

The ruling also said the insurer was not obligated to advance defense costs under the policy, because the policy provides it must do so only for covered claims, “not for potentially covered claims.” The policy also provides Specialty will advance defense costs only for the portion the parties agree is not in dispute.

Conditions in the policy “are thus impossible to square with TPx’s proposed interpretation of the Policy to obligate Specialty to advance defense costs for any potentially covered claim,” the ruling said in affirming the lower court decision.

U.S. Specialty’s attorney had no comment while TPx’s attorney did not respond to a request for comment.