Qui Tam Wage‑and‑Hour Action Not an “Employment Claim” and Thus No Duty to Defend
The U.S. District Court for the Central District of California, applying California law, held that an employment practices liability insurer owed no duty to defend a qui tam action alleging prevailing-wage violations because the claims were not brought “by or on behalf of an Employee” and therefore did not involve a covered “Employment Claim” and, with respect to the employee-based claim, did not allege a covered “Employment Practices Wrongful Act.” Shimmick Constr. Co., Inc. v. Arch Specialty Ins. Co., 2026 WL 1048234 (C.D. Cal. Mar. 4, 2026). The court further held that, even if the insuring agreement were satisfied, coverage was independently barred by the policy’s wage-and-hour exclusion.
The insured construction company tendered defense of a California qui tam action alleging that it violated prevailing-wage and apprenticeship requirements and submitted false certifications in connection with public works contracts. The action was brought by public entities and qui tam relators seeking statutory penalties and equitable relief. The complaint also included a claim on behalf of an individual employee for alleged underpayment of wages. The insurer denied coverage on the grounds that the action did not allege a covered “Employment Claim” and was barred by the policy’s wage-and-hour exclusion. The insured subsequently filed suit seeking defense costs and asserting causes of action for breach of contract and bad faith.
The court first held that the qui tam claims were not covered because they were brought by governmental entities and qui tam relators, not “by or on behalf of an Employee,” as required by the policy’s insuring agreement. The underlying complaint alleged violations of California prevailing‑wage and labor laws based on the insured’s alleged false certifications in connection with public works contracts and sought statutory penalties and equitable relief. Because these claims sought recovery for governmental contractual and statutory interests, not any employee’s interest, they did not qualify as covered “Employment Claims” under the policy.
The court next addressed the claim asserted on behalf of an individual employee and held that it likewise did not trigger coverage because it did not allege an “Employment Practices Wrongful Act,” which the policy defined to include specified categories such as employment contract breach, discrimination, retaliation, wrongful termination, or other enumerated employment‑related misconduct. The court explained that allegations of statutory underpayment of wages, without allegations of discrimination, retaliation, or breach of an employment contract, fell outside that definition and therefore also did not constitute a covered “Employment Claim.”
Finally, the court held that, even if the insuring agreement were satisfied, coverage was independently barred by the policy’s wage‑and‑hour exclusion, which excluded claims arising from alleged violations of wage‑and‑hour laws. Accordingly, the court granted the insurer’s motion to dismiss and held that no duty to defend was owed, while granting the insured leave to amend to pursue an alternative third-party liability theory.
