Mimi’s Cafe sets precedent with Calif. wage-hour insurance win
A landmark decision by the California Court of Appeals here may clear the way for restaurant operators to obtain compensation from employment practices liability policies when the employers make costly legal payouts amid the current wave of wage-and-hour litigation.
The appellate court ruled in favor of SWH Corp., former parent of the Tustin, Calif.-based Mimi’s Cafe chain, which had appealed its loss in a lawsuit against Select Insurance Co. The insurer had refused to contribute to a $1.9 million settlement in 2004 of a lawsuit against Mimi’s Cafe by assistant managers who claimed they were denied overtime pay.
California has witnessed an explosion of wage-and-hour class actions in recent years, and several restaurant companies have shelled out multimillion-dollar settlements to employees. Often, operators will not press an insurer if it denies a claim, but the issue is worth pursuing said Wallan, who also represented Lake Forest, Calif.-based Del Taco in a similar lawsuit.
“A lot of folks have simply made the assumption there is no coverage and given up,” Wallan said. “Mimi’s and Del Taco did not give up.”
The case against Del Taco was decided in the company’s favor in an unpublished arbitration ruling, so it had not yielded a precedent that other defendants could easily cite in court, the Pillsbury Winthrop firm indicated.
Typical employee practices liability policies do not cover labor violations by employers but do shield them against misdeeds of employees, such as sexual harassment or racial discrimination. However, if the policy language is ambiguous, restaurant companies may be able to argue for coverage when alleged labor violations result in legal expenses.
In the Del Taco case, the arbitration panel ordered the quick-service chain’s insurer, National Union, to pay $1 million to help defray the company’s legal costs. Del Taco in 2005 had agreed to pay $5 million to resolve three lawsuits filed by employees who claimed they were not paid overtime.
In both cases, the insurance companies argued that their employment practices liability policies exempted coverage for violations of the federal Fair Labor Standards Act and similar state laws. The insurers argued that California’s Labor Code is similar to the FLSA. However, the arbitration panel, and now the state’s appeals court, ruled that “similarity” was too vague a concept and that the ambiguous language of the policies should be interpreted in favor of the insured restaurant companies.
“There are now two tribunals that have reached the same conclusion, [that these policies] do not exclude California state wage-and-hour claims,” Wallan said.
In the case involving Mimi’s Cafe, which now is owned by Columbus, Ohio-based Bob Evans Farms Inc., Select Insurance also had argued that settlements for back-pay claims and wages were not insurable under the policy, he said. The appeals court rejected those arguments.