The employees of Jeff Tracy, Inc. (Tracy) filed a complaint with the California Department of Industrial Relations, alleging that Tracy did not pay the prevailing wages as required under a major construction project. The Department agreed and levied assessments against Tracy.

U. S. Specialty Insurance Company (USSIC) wrote a Directors and Officers policy for Tracy. When notified of the assessment, USSIC denied coverage.

Tracy argued that coverage applied because the case involved back payment of wages. USSIC argued that it was an employment practices wrongful act case and not covered based on certain policy exclusions.

Tracy lost -- again.

Click here for the details on this court case.

When employers perform acts that are contrary to their employee’s protected rights, the affected employees can file complaints with the local, state or federal department responsible for protecting those rights. These are considered wrongful acts. Most liability coverage forms and policies specifically exclude coverage for these acts.

Click here for an analysis of the Commercial General Liability (CGL) exclusion and a discussion regarding need for separate coverage.

The insurance industry is extremely innovative. If an exposure develops, coverage for it almost invariably emerges. Employment-related Practices coverage was initially available only to large companies under very specialized coverage forms. It is now available from some standard markets and some limited coverage is occasionally endorsed to the commercial general liability coverage. Some Directors and Officers carriers offer it as an extension of their coverage. The Insurance Services Office (ISO) also developed a standardized version for use with its coverage forms.

Click here for an overview of the ISO Employment-related Practices coverage part.

Your clients may not even be aware of this serious gap in their coverage. They may believe that they don't need it or that it is part of their existing coverage. Some may believe that it is not available at all and that the risk is just a cost of doing business.

Click here for a letter you might consider customizing and sending to your clients to let them know that help is available.

The PF&M Court Cases index has been changed and reorganized to make it more accessible to you. These cases involve significant coverage-related challenges subsequently appealed to higher courts for reconsideration and further review. Consider using PF&M Court Cases as we do in IN ACTION as an educational tool to highlight potential coverage gaps that can lead to additional sales opportunities.

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