Insurance Coverage for Wage & Hour Claims Arising Out of Superstorm Sandy

November 07, 2012

Although the full scope of Superstorm Sandy’s financial impact will not be known for some time, there is little debate that Sandy will go down in history as one of the nation’s most costly natural disasters.  In fact, many experts already estimate total losses in excess of fifty billion dollars.

In the aftermath of Sandy, businesses undoubtedly will focus on restoring operations as soon as possible.  Indeed, their insurers will argue that businesses have a duty to do so, in order to mitigate business interruption losses.

It is likely that such efforts will necessitate asking employees to work overtime.  Among other things, the process could involve the reorganization of work schedules and/or increased telecommuting.

During this process, businesses must ensure that they do not inadvertently violate state and/or federal wage and hour laws (note: state and federal wage and hour laws often differ — with states sometimes imposing stricter obligations on companies than those imposed by federal law).  See, e.g., Abigail Rubenstein, Employers Can’t Ignore Wage Laws In Hurricane Sandy’s Wake, Law360, Nov. 1, 2012.  Failure to adhere to applicable wage and hour laws could result in litigation and/or government investigation down the road.

The cost of paying this overtime could be a significant cost item for businesses already struggling to rebuild from the storm.

Fortunately, commercial property insurance can help companies mitigate the expense of complying with wage and hour law in difficult times.  Most first-party commercial property insurance policies provide coverage for the increased expense to a business in compensating employees in the days and weeks following covered property damage.  This coverage is usually called “extra expense” coverage.  The purpose of extra expense coverage is to compensate businesses for the reasonable and necessary expenses that they incur after a loss to help minimize the business interruption caused by the loss.  The costs include expenses that companies incur to continue operations or to resume operations more quickly than they would have otherwise.  In this way, it benefits both the company, by allowing it to resume operations more quickly, and the insurer that would otherwise be responsible for the business interruption loss.

Overtime pay for employees that are required to work additional time due to a covered loss is exactly the type of extra expense that often is covered by these policies.  Therefore, companies should analyze their policies, potentially with the help of an insurance professional, and keep careful records of wage expenses incurred that are related to getting the business back on its feet.  These expenses should be submitted to the insurer for payment.

Sometimes, however, even with the best intentions and efforts, wage and hour violations still can occur.  Fortunately, in the event that wage and hour litigation and/or a government investigation nevertheless develops, companies may find coverage for such claims under their employment practices liability coverage, or under their directors and officers insurance policies that include an employment practices liability coverage component.  For a more detailed discussion of insurance coverage for wage and hour claims, please see our prior article on the topic, Rethinking Common Wisdom of ‘Wage And Hour’ Insurance, Law360, May 2012.