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

Here is the last of three posts on recent Massachusetts tips act coverage cases.  Click these links to see the first and second posts.

No Coverage For Tips Cases Under CGL or EBL Policies:  Berkshire-Cranwell Limited Partnership v. Tokio Marine & Nichido Fire Ins. Co., United States District Court for the District of Massachusetts Civil Action No. 11-30194 (Ponsor, J., July 6, 2012).

In Berkshire-Cranwell, the policyholder, a spa and resort, was sued by employees under the Massachusetts tips act and common law for failing to distribute service fees.  The spa sued its insurers for coverage under commercial general liability policies with employee benefits liability (“EBL”) riders.  The Court rejected both of the spa’s arguments for coverage.  

First, the spa claimed that the property damage liability coverage applied, asserting that the complaint alleged loss of use of tangible property.  While money may in some circumstances be tangible property, in this case it was not, the Court ruled.  The service fees were not valued for their tangible significance, but for their intangible transactional value.  So the framed $100 bill representing the first money earned by your business might be tangible property, but an entitlement to gratuities paid by customers, whether by cash, check or credit card, is not.

Second, the policyholder argued that the service fees were “employee benefits” within the EBL coverage.  The Court disagreed, ruling – in language that coincidentally supports the dispositive ruling in Kittansett  that the policy’s definition of “employee benefits” is “inclusive of only traditional health, welfare and retirement benefits, and exclusive of wages such as cash tips.”  The Court also ruled that the policyholder’s delay in giving notice to the insurer for over three years – during which time class certification was granted, summary judgment motions adjudicated, and settlement discussions pursued – was prejudicial and barred coverage.

Waiter, Can I Change My Order?

The three cases I have discussed are trial court decisions.  One of the two policyholders in Cadete  is pursuing an appeal, as is the policyholder in Berkshire-Cranwell, and the time for an appeal in Kittansett  has not yet run.  These issues will continue to be litigated, but the first course does not go down easy for employers seeking coverage of tips act claims.

Harvey Nosowitz
(617) 621-6555

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Harvey Nosowitz

Posted In: Employment Claims

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