“Employment-Related Wrongful Acts” Exclusion Bars Coverage for Wage Claims under D&O Policy

A New York intermediate appellate court has held that an exclusion “for any employment-related Wrongful Act” unambiguously barred coverage under a D&O policy for a claim against a director for failure to pay wages and earned vacation benefits.  Hansard v. Federal Ins. Co., 2017 WL 424688 (N.Y. App. Div. Feb. 1, 2017).

A director of a non-profit corporation engaged in the business of vocational training and job preparation was sued for, among other things, violations of the federal Fair Labor Standards Act and the New York Labor Law with respect to the payment of wages and earned vacation benefits.  The director sought coverage under a D&O policy, but the insurer denied coverage based on an exclusion “for any employment-related Wrongful Act.”  The director then brought a coverage action against the insurer, and the trial court granted summary judgment in favor of the insured after concluding that the exclusion did not bar coverage.

On appeal, the court reversed the trial court decision and ruled in favor of the insurer.  In so doing, the court noted that the phrase “employment-related,” while undefined, was not ambiguous.  The court held that, in context, “an ‘employment-related Wrongful Act’ is a Wrongful Act ‘connected by reason of an established or discoverable relation to the act of employing or the state of being employed.’”  Here, the court determined that the underlying suit clearly fell within that scope because the plaintiffs’ claims involved alleged violations of wage laws and retaliation for complaints about violations of wage laws.  On that basis, the court reversed summary judgment and remanded the case with instructions to enter judgment in favor of the insurer.