I spoke this week at ACI’s 16th annual conference on Employment Practices Liability insurance, and one of the major themes was wage and hour coverage. The conflicting opinions about the insurabilty of these claims intrigues me, as it reminds me a bit of the original discussions about EPLI products. Once upon a time, EPL was alleged to be not insurable because violations were voluntary acts, or they allowed employers to escape the economic consequences of acting badly toward employees, or because it protected companies that underpaid its employees.
Although we know that a number of insurers include defense coverage for wage and hour claims, there is little if any real coverage out there for non-defense costs (that is, for the damages awarded to the employees).
We heard several arguments about why they are not insurable, as a practical matter (setting aside public policy issues), including:
- All employees get paid and are therefore potential claimants, whereas with EPL, only an individual (or a class) is a potential claimant. If all employees are potential claimants, the damages would be so large as to be uninsurable.
- Once an overtime pay policy is put into effect, it is difficult to change it without employees wondering why they didn’t get overtime before; this can trigger lawsuits.
- Numerous local laws make compliance difficult
- One carrier representative commented that there are just too many incentives for employers to cheat, with back wage claims often being settled for 40-70 cents on the dollar, and further limited by a statute of limitations. This is less expensive than paying overtime.
- He also noted that the current-day ‘blue collar’ worker is often an entry or low-level worker with education hoping for promotion. These workers often have titles that sound like they are exempt level employees when in fact they should be classified as hourly. This conflict between aspiration and reality can lead to easy misclassification.
- Wage and hour is all about paying employees for something that they should by rights already have been paid for, so it shouldn’t be insurable (query: and how is this different from EPL damages that are awarded for back pay?)
I asked the audience whether they thought wage and hour claims are insurable, and roughly half said yes (ACI’s audience this year looked to be about 70% defense attorneys, 30 insurance industry, by my rough count). I did not ask them to distinguish between insuring defense and damages or just defense.
I have to say that, moral issues aside, I fail to see a good reason why wage and hour isn’t insurable for at least mid- to small-market employers. The reasons sound to me a lot like the ones that were heard – and overcome – in the early days of EPLI.
I’d love to hear your thoughts.