Republic Franklin Insurance Co. v. Albemarle County School Board
Decided Feb. 24, 2012
Republic Franklin Insurance Company brought an action against Albemarle County School Board seeking a declaratory judgment that Franklin Insurance owed no duty to defend the School Board in an action commenced by School Board employees for violations of the Fair Labor Standards Act; nor any duty to indemnify the School Board for any judgment that might be entered in the action. The district court entered summary judgment for Franklin Insurance, holding that the School Board’s failure to pay its employees in accordance with the Fair Labor Standards Act were not “wrongful acts” covered by the policy because the School Board had a preexisting duty to pay its employees in compliance with the Act. The court also held that any judgment that might be entered against the School Board for failure to comply with the FLSA would not cause the School Board to sustain a “loss” as defined in the policy. The Fourth Circuit reversed, holding that failing to comply with the FLSA is a wrongful act covered by the insurance policy. The Fourth Circuit further held that a judgment awarding unpaid wages would not be a covered loss under the policy because payment of those wages was a preexisting duty; however, any obligation to pay liquidated damages and attorneys’ fees would be losses covered by the policy.
-Sara I. Salehi