W&H Insurance Coverage


Upon its enactment in 1938, Fair Labor Standards Act (FLSA) established the federal minimum wage, employee classifications and exemption standards, recordkeeping obligations, as well as a myriad of other federal wage and hour (W&H) legal requirements.  In the early 1990s, the FLSA adopted the collective action remedy (See “The Problem” ) and employers W&H liability reached epidemic proportions with W&H collective actions constituting a company’s greatest legal threat.

Frequently, Employers misunderstand their W&H exposure and fail to adequately address their obligations under FLSA and its state companion laws. Employers commonly and incorrectly assume that W&H claims are restricted to either misclassification of employment status or failure to pay overtime. However, W&H liability includes without limitation allegations such as underpayment of overtime, miscalculation of wages, failure to compensate employees for off-the-clock work, refusal to pay exempt employees for absences, failure to pay compensation for dawning and doffing protective clothing, and failing to comply with state and local companion laws offering greater protection than federal law.  Any violation of the aforementioned federal and/or state laws expose employers to economically devastating collective actions. See “The Problem” .



Wage and hour claims continue to rapidly increase in frequency and settlements year over year.

According to Seyfarth’s 18th Annual Workplace Class Action Report: As of 2021, Wage & Hour class action settlements were 641.30 Million. A 45% increase as compared to 294.60 million in 2020.

Additionally, conditional certifications are at 81%. The second highest level of certifications in the last decade.


Most businesses have multiple insurance policies to manage risk and reduce its exposure to liability.  For example, common types of business insurance include:

  • Workers’ compensation insurance (required by law);
  • Unemployment insurance (required by law);
  • If the business has company vehicles, then there’s vehicle policies;
  • General liability insurance to cover physical damage to any places or equipment owned or leased by the company.
  • Errors and Omissions (E&O) coverage and/or Directors and Officers (D&O) policies depending on the type of business. Further, some businesses elect to get polices or riders to cover things such as cyber security, earthquakes, and even terrorist attacks.
  • Employment Practices Liability Insurance (EPLI).

These insurance policies probably give you a sense of security, knowing that if the unexpected happens, you’re protected. Statistically speaking, however, a business’ greatest legal risk is not a fire, theft, or even a lawsuits for wrongful termination or discrimination. Rather, it’s a W&H collective action, which can be filed by one employee on behalf of all similarly situated employees currently employed and former employees within the statute of limitations.  The statute of limitations can be as large as eight years depending on the state where the collective action is filed.  W&H collective actions are the fastest growing type of lawsuits against employers in the United States, with the average cost of resolution without trial in the mid six figures for a small- to medium-sized business (and in the seven figures for larger employers).


It is extremely rare for EPLI policies that have W&H coverage to cover any actual liability (meaning paying the cost of a judgment or settlement). Instead, these policies usually just cover limited “costs of defense” i.e., the employer’s legal fees subject to policy limits. Any actual settlement or judgment would still be the Employer’s sole responsibility.

It is not uncommon to see very high deductibles ($75,000, $100,000, or in some cases even $250,000) for wage and hour claims that must be met before the insurance company contributes any money. After the deductible is met, the insurance company will cover a set amount for defense expenses (typically a range between $50,000 to $100,000).  Keep in mind that the deductible is calculated using the insurance company’s “panel” rates for attorneys, which are usually around half the market rate for qualified wage and hour defense counsel.

As such, protecting against W&H exposure usually requires that businesses purchase standalone W&H liability coverage. For the most part, there are fewer carriers in the W&H coverage space and the industry isn’t seeing new entrants in the sector. In addition, existing carriers have reduced their offerings, restricting coverage and tightening terms.



For small and mid-sized employers, coverage has generally been restricted to sub-limited defense costs only, with no indemnity for judgments or settlements. Even the restricted offering may be unavailable in certain regions and for specific classes of business, such as healthcare, restaurants, and franchisee business. Currently, the defense costs only sub-limits range from $50,000 to $150,000 for small and middle markets. In a small number of cases, employers may be able to negotiate an option up to $250,000. However, carriers have begun pulling back in light of increased focus on W&H legislation and attention from the plaintiff’s bar.  In states where the risk is higher or litigation is frequent, those limits are tightened even further, or not available at all.



The Bermuda and London markets continue to quote W&H coverage with large retentions and heavy premiums primarily for the Fortune 500 class of companies. These coverage options are for standalone policies or blended W&H and EPL policies. The standalone policy option is not available at rates that smaller companies can generally afford.



Deductibles, Reduced Panel Counsel Rates, Inexperienced Insurance Adjusters.

Insurance carriers use their panel counsel legal rates (usually less than half of regular market rates) to reimburse time entries and work done that it deems “reasonable and necessary” as determined by their adjusters assigned to these cases.  Often, these adjusters lack the expertise to understand the complexity and nuance required to defend and resolve a W&H collective action resulting in denial of payments for legitimate legal fees and costs.  In sum, an adjuster with little or no wage and hour collective action experience reviews the employer’s legal bills and makes arbitrary cuts based on his/her understanding of the policy’s “reasonable and necessary” standard.  Afterwards, the remaining legal fees are applied to the deductible at the carrier’s reduced legal rates.  This practice effectively doubles or triples the employer’s deductible.  It is not unusual for Employers to spent hundreds of thousands of dollars to meet a $50,000 deductible.  Even after the deductible is satisfied, the carrier continues to nickel and dime the employer regarding any money it must contribute thereafter.


Inexperienced Panel Counsel

Most W&H policies either give the carrier the exclusive right to select panel counsel or include terms that give the insured a limited right to select from a list of approved panel counsel, most of whom are the low-cost, inexperienced wage and hour lawyers described below. In the rare circumstance where the carrier allows the insured to pick its own counsel, the insured will be required to pay the difference between the carrier’s low panel rates and the rates of the insured’s chosen counsel. Again, the deductible will only be calculated using the lower panel rates for time entries the insurance company approves.

Accordingly, panel counsel often assumes the defense of the W&H collective action.  Unfortunately, panel counsel’s mainstay is often low-rate insurance single-plaintiff defense work and lack any significant experience with complex collective actions and other W&H clams.  As a result, these firms are often not equipped with the expertise, personnel, or approach to handle or successfully resolve a wage and hour class action (particularly not against the top serial filers in the W&H collective actions).  In addition, panel counsel tend to bill junior and/or inexperienced lawyers not specialized in wage and hour or class action cases to make up for the submarket insurance reimbursement rates.  With this dynamic in play, the risks here include (1) the case getting over-litigated/mismanaged; (2) the insurance defense firm eating through the deductible and the limited coverage, and (3) the insured/defendant ending up stranded in the case without adequate counsel, coverage, or an exit strategy, with all available coverage exhausted.

Once the limited coverage is exhausted, neither the insurance carrier nor the defense firm of their choice has any real skin in the game.  Panel counsel’s lack of expertise typically causes the plaintiffs’ lawyers to invest significant time and expense in the case (and perhaps uncover more issues or claims in the process) that drive up the settlement value. Plus, employers pay the other side’s legal fees if even one violation is proved in the case, so even if an aggressive defense knocks out 99% of the liability, the employer will be on the hook for 100% of the other side’s attorneys’ fees, which have been driven up through litigation. Thus, the client can be left with a case that has been mismanaged that will only settle for a premium, but there is no insurance coverage to cover the cost of settlement, not to mention the other side’s attorneys’ fees.


Prevention is always the best line of defense against W&H claims. Beyond purchasing insurance, employers can mitigate risk by:

  • Assessing the Risk within the Company, Starting with the State and Local Government Self-Assessment Tool Available from the U. S. Department of Labor’s Wage and Hour Division
  • Reviewing Exempt/Non-Exempt Employee Classifications Regularly and Promptly Updating or Revising Job Descriptions to Ensure Employee Classifications and Job Descriptions are Accurate
  • Enacting Policies that Prohibit Off-The-Clock Work
  • Regularly Reviewing Managerial Practices to Ensure that Supervisors Discourage After-Hours Work
  • Correctly Understanding State Wage and Hour Laws, and Keeping Pace with any Local or Federal Changes
  • Consulting with Outside Legal Counsel to Safely Navigate Wage and Hour Issues


As the number of labor law violations and lawsuits rises, employers must be vigilant in properly managing employees or risk falling victim to the added costs of litigation, penalties, and back wages. It’s critical that businesses review HR policies and employee classifications to avoid devastating mistakes. In addition, W&H Liability coverage, while difficult to come by, is available. Maintaining a strong relationship with CAS which has extensive marketplace connections and deep industry expertise can make all the difference when navigating the world of W&H risks.




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