Traditional employment practices liability (EPL) and directors’ and officers’ (D&O) insurance may not apply today to cover wage-and-hour liabilities, an issue we detailed in the first and second installments of this series. Directors, officers, top-10 shareholders and possibly others facing expanded liability as a result of new statutes in California and New York should consider the new wage-and-hour insurance policies on the market as another source of protection against wage-and-hour liabilities.
In response to the increasing prevalence of wage-and-hour exclusions in traditional EPL and D&O policies, the insurance industry has developed insurance policies to provide protection tailored to today’s increasing wage-and-hour exposures.
The world’s largest insurance broker, Marsh, developed its wage-and-hour specialty coverage, entitled “Wage and Hour Preferred Solution,” in 2013. Initially, only a few brokers, including Aon and Marsh, were placing this product through one or two insurers, but the potential market for such coverage is expanding. A number of insurance companies now offer this product. The biggest market providing such insurance is in Bermuda and today includes Markel Corporation, XL Insurance (Bermuda) Ltd and Allied World Assurance Company Holdings, AG (AWAC). One U.S. insurer, the American International Group, Inc. (AIG) and its affiliated insuring entities, and one London insurer, Beazley Group, now also offer this coverage.
Mandatory Arbitration Provisions and High Retentions
The Bermuda wage-and-hour policies cover liability for alleged employee misclassification and other wage-and-hour exposures. However, these policies, like all Bermuda policies, include mandatory arbitration provisions, requiring arbitration of disputes arising under the policy in London under U.S. law (typically New York law). The retentions on these policies have been very high, up to $5,000,000. However, with the interest in such coverage expanding, wage-and-hour insurers are starting to lower the retention required, e.g., $500,000 self-insured retention (SIR) for smaller risks.
Because these wage-and-hour policies are new, no caselaw yet exists interpreting them. However, any company or individual at risk for wage-and-hour claims, and not sufficiently covered under a company’s existing insurance portfolio, should consider purchasing this new coverage.
© 2016 Perkins Coie LLP