Court orders insurer to pay back wages

Michael P. Tremoglie Feb. 27, 2012, 12:00pm

RICHMOND, Va. (Legal Newsline) - A federal court says an insurance company must pay back wages to employees of a Virginia county school board.

On Friday, the U.S. Court Appeals for the Fourth Circuit in Richmond, Va., reversed a U.S. District Court summary judgment in favor of Republic Franklin Insurance Company stating it was not obligated to pay back wages to the employees of the Albemare, Va. School Board. The Appeals court said the School Board committed a "wrongful act" according to the Fair Labor Standards Act and was therefore covered by the insurer.

Republic Franklin Insurance sued the school board, claiming it was not liable to defend the board in litigation brought by employees for violations of the FLSA. Republic Franklin also claimed it was not liable to indemnify the school board for any judgment against it. The employees sued for overtime pay for work in excess of 40 hours in a week.

Franklin Insurance asserted that the FLSA violations "were not "wrongful acts" as covered by the commercial insurance policy it issued to the School Board and ... that any judgment that might be entered against the school board would not impose "losses" on the school board, as "loss" is defined in the policy."

The District court concurred because the school board's obligation to pay its employees was pre-existing. The District court also said that any judgment was not "loss" as defined in the policy.

The Fourth Circuit Appeals Court concluded that the school board's violation of the FLSA was a wrongful act. As such, a judgment to pay liquidated damages and attorneys' fees would cause the School Board a loss from a wrongful act. This would be covered by the policy.

The Appeals Court concurred with the school board, which asserted that the terms of the policy made Franklin liable to pay for all losses resulting from a claim for a wrongful act. According to the School Board, the policy defines a loss as any amount which an insured is legally obligated to pay as damages. This term includes punitive damages.

The Appeals Court said, "that the underlying FLSA complaint in this case alleges "wrongful acts" on the part of the School Board within the meaning of the policy issued by Franklin Insurance."

The Appeals Court also said that because the complaint filed against the School Board wanted not only the back pay, but also liquidated damages and attorneys' fees, any judgment against the School Board, including "liquidated damages and attorneys' fees" constituted a loss, as defined by the policy that resulted from claims for wrongful acts. "Franklin Insurance's policy provides coverage for this loss."

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