Between the Lines

A Discussion of Case Law and Statutory Law Affecting Commercial Lines of Insurance



No Coverage For Massachusetts Tips Cases, Say Three Trial Court Judges

This is the second of three posts on recent Massachusetts tips act coverage cases.  The first post is here.

No Coverage For Tips Cases Under EPL Policies:  Cadete Enterprises, Inc. v. Philadelphia Indemnity Ins. Co., Suffolk Superior Court Civil Action Nos. 11-3252-BLS1 and 11-3503-BLS-1 (Lauriat, J., July 11, 2012). 

In Cadete, suits were filed against two fast food franchise owners for allowing managers to share in the employee tip pools in violation of the Massachusetts tips statute.  Each owner filed suit against its employment practices liability (“EPL”) insurer, and the coverage cases were consolidated.

The Court ruled on summary judgment that the statutory claims did not fall within the EPL policy’s definition of a covered “Employment Practice Act.”  That definition did not include tips act claims, and the Court rejected the policyholders’ argument that the statutory claims should be read to incorporate claims for breach of an implied employment contract or for misrepresentation.

The Court also ruled that, even if the complaints alleged conduct within the insuring agreement, the policy’s exclusion for claims under the Fair Labor Standards Act (“FLSA”) or other similar laws would bar coverage.  While the FLSA does not directly prohibit managers from sharing in a tip pool, as does the Massachusetts tips act, the FLSA does prohibit an employer from taking a tip credit against the minimum wage if the employee shares in a tip pool with anyone who does not customarily and regularly receive tips, that is, a manager.  The Court concluded that while the two statutes are not identical, they are similar, and tips act claims are excluded.

My next post will be on a federal District Court case finding no coverage for Massachusetts tips act claims under a commercial general liability policy’s property damage coverage or an employee benefits liability rider.

Harvey Nosowitz
(617) 621-6555


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Harvey Nosowitz

Posted In: Employment Claims

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