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Calif. high court strikes down insurance adjuster overtime ruling


SAN FRANCISCO—The California Supreme Court on Thursday struck down an appellate court ruling that had concluded insurance adjusters are not exempt from laws requiring employers to pay overtime wages.

The closely watched decision in Frances Harris et al. vs. The Superior Court of Los Angeles County stemmed from four class action lawsuits filed by adjusters working for Liberty Mutual Insurance Co. and Liberty Mutual Group's San Diego, Calif.-based unit, Golden Eagle Insurance Corp.

The claims handlers alleged the insurers erroneously classified them as exempt “administrative” employees and sought damages for unpaid overtime work.

The four suits were consolidated into one proceeding, and California's 2nd District Court of Appeal eventually reviewed a trial court's denial of summary judgment sought by the adjusters, who were seeking to eliminate an insurer defense that the adjusters were exempt from the overtime compensation requirements.

In reviewing the case, the appellate court evaluated state and federal laws to determine whether the claims adjusters are administrative employees or production workers.

A divided appellate court ruled in 2007 that “the undisputed facts show that plaintiffs are primarily engaged in work that falls on the production side of the dichotomy” between administrative and production work.

“They investigate and estimate claims, make coverage determinations, set reserves, negotiate settlements, make settlement recommendations for claims beyond their settlement authority, identify potential fraud and so forth. None of that work is carried on at the level of management policy or general operations,” the appellate court ruled.

Therefore, it found the adjusters could not be considered exempt employees under wage-and-hour regulations.

But in Thursday's unanimous ruling, the California Supreme Court said the appellate court improperly evaluated the administrative/production worker dichotomy.

Among other findings, the state high court agreed with an appellate court dissenting opinion. The dissenting opinion revealed “limitations of the administrative/production worker dichotomy itself as an analytical tool,” the Supreme Court ruled.

The dissent pointed out that, “Because the dichotomy suggests a distinction between the administration of a business on the one hand, and the ‘production' end on the other, courts often strain to fit the operations of modern-day post-industrial service-oriented businesses into the analytical framework formulated in the industrial climate of the late 1940's.”

While the state high court overturned the appellate court ruling, it also pointed out that it was not expressing an opinion on the strength of the parties' relative positions. “We merely hold that the Court of Appeal majority erred in its analysis.”

It reversed the appellate court's findings and remanded the case for further proceedings.