Fourth Circuit Finds Partial Coverage for FLSA Violation

The Fourth Circuit recently held that an insured’s failure to pay its employees’ wages in accordance with the Fair Labor Standards Act triggered the insurer’s duty to defend under a commercial package insurance policy.  In Republic Franklin Ins. Co. v. Albemarle County School Board, the court determined that to the extent a judgment arising from an FLSA claim included liquidated damages and attorneys’ fees, it amounted to a loss under the policy resulting from a “wrongful act.”

Several transportation workers employed by a Virginia school board alleged that the board had not paid them for all the work they had done and failed to pay overtime.  The workers demanded liquidated damages and attorneys’ fees.  Republic agreed to defend the board under a reservation of rights, contending that the FLSA violations were not “wrongful acts” and that any judgment that might be entered would not impose “losses” under the policy.

Republic won summary judgment at the district court, but the Fourth Circuit reversed.  The court determined that the FLSA violation did constitute a “wrongful act” under the policy, and differentiated between a judgment awarding unpaid wages – a preexisting duty, and thus not a “loss” – and an award of liquidated damages and attorneys’ fees.  The court reasoned that because the latter resulted specifically from a claim for an alleged wrongful act, it was a covered loss under the policy.

About Bose McKinney & Evans LLP

Bose McKinney & Evans LLP is a business law firm, headquartered in Indianapolis, Indiana, serving both publicly held and privately held businesses, governmental entities and high-growth industries. Our clients include Fortune 100 companies, international manufacturers, national and regional financial institutions, agribusinesses, sports teams, university-incubated start-ups, media, utilities, cities and schools, to name a few. We strive to build strong relationships with our clients as key business advisors, to exceed expectations in the quality of our work, to be knowledgeable about our clients’ businesses and sectors, to be responsive to service needs and to continually seek to improve the delivery of client services. Our ultimate focus is on our clients.
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