Calif. Supreme Court Reverses Lower Court on Overtime Pay for Liberty Mutual Insurance Adjusters

The Supreme Court of California has overturned an appeals court decision that ruled insurance claims adjusters are eligible for overtime pay, writing in its decision the Court of Appeal misapplied the substantive law.

The state high court expressed no opinion on the strength of the parties' positions. "We merely hold that the Court of Appeal majority erred in its analysis." It remanded the appellate court's judgment with directions to apply the "appropriate legal standard" set out in its opinion.

The case, Frances Harris et al. v. Superior Court of Los Angeles and Liberty Mutual Insurance Co. et al, stemmed from a class-action lawsuit filed by a group of adjusters who argued Liberty Mutual and its subsidiary, Golden Eagle Insurance, owed them overtime pay under California law (Best's News Service, Sept. 12, 2011).

Liberty Mutual Insurance Co. "is pleased that the California Supreme Court gave thoughtful consideration to the issues," spokesman John Cusolito said in a Dec. 30, 2011 voice mail message.

The adjusters group scored a victory in 2007, when the California Second District Court of Appeal overturned the lower court, ruling they were owed back pay.

But the appeal to the state's Supreme Court centered on a state regulation under the Industrial Welfare Commission that says "persons employed in administrative, executive or professional capacities" are exempt from overtime pay. The Second District appeals court ruled, "Plaintiffs may or may not be among the many persons who do work of substantial importance. But plaintiffs primarily do production work, so they cannot be covered by the administrative exemption."

The administrative exemption to overtime rules requires a case-specific analysis of work performed by the employees involved, the judges found: "Reliance on a job title like 'claims adjuster' is no substitute" (Best's News Service, Oct. 3, 2011).

In its opinion, the California Supreme Court noted this case tests whether certain insurance company claims adjusters are exempt employees not entitled to overtime compensation under the Labor Code and regulations of the California Industrial Welfare Commission, a quasi-legislative agency that regulates aspects of the employment relationship.

"The essence of our holding is that, in resolving whether work qualifies as administrative, courts must consider the particular facts before them and apply the language of the statutes and wage orders at issue," the California Supreme Court ruled.

Liberty Mutual Insurance Co. and Golden Eagle Insurance Corp. currently have Best's Financial Strength Ratings of A (Excellent).

(By Fran Matso Lysiak, senior associate editor, BestWeek: [email protected])