Advisen: Wage-and-Hour Lawsuits Rising But Coverage Hard to Find

April 8, 2010

Wage-and-hour lawsuits have surpassed employee discrimination suits, measured by both number of filings and size of settlements, according to a report from Advisen Ltd.

Most insurers have shied away from covering these suits, leaving companies with a substantial uninsured exposure to loss, according to the report.

“Publicity surrounding changes made to the Federal Labor Standards Act in 2004 has been a catalyst for class action lawsuits,” said John Molka III, author of the report. “On top of that, enforcement efforts by the U.S. Department of Labor have further stimulated class actions. American businesses are exposed to very large losses from these suits, but the insurance industry has been slow to respond with coverage for this risk.”

The Department of Labor estimates that 80 percent of employers are not in compliance with applicable wage and hour laws. The retail sector has been targeted in many of the largest suits – Wal-Mart alone has been named in more than 80 wage-and-hour class action civil suits, and has agreed to settlements in the hundreds of millions of dollars – but no sector is immune.

“Wage-and-hour issues are not limited to hourly employees,” said Dave Bradford, Advisen executive vice president. “Companies primarily employing salaried professionals have been subject to large class action suits as well, and there have been eye-popping settlements.”

Insurance companies have shied away from providing coverage largely because wage-and-hour lawsuits have been viewed as the the result of intentional acts rather than fortuitous events. Recently, some insurers have begun offering coverage for the costs of defending these suits, and at least two insurers have introduced policies that respond to settlements.

Advisen’s 21-page report, The Threat of Wage-and-Hour Lawsuits, includes a survey of insurers that provide coverage that may respond to these suits.

Advisen tracks 6,000 significant employment cases and events. These records total more than $12 billion in loss and they range from hostile work environment to whistleblower/retaliation to discrimination and harassment. Wage-and-hour is one of the most rapidly expanding case types; there currently are 561 cases cases in the Advisen database.

Source: Advisen

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