The Talbots, Inc. et al

Filing 20

Judge Richard G. Stearns: ORDER entered granting 8 Motion to Dismiss for Failure to State a Claim (RGS, law2)

Case 1:17-cv-11107-RGS Document 20 Filed 09/29/17 Page 1 of 12

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
CIVIL ACTION NO. 17-11107-RGS
THE TALBOTS, INC.
v.
AIG SPECIALTY INSURANCE COMPANY
MEMORANDUM AND ORDER ON
DEFENDANT’S MOTION TO DISMISS
September 29, 2017
STEARNS, D.J.
This insurance dispute arises from a California state court lawsuit
brought against The Talbots, Inc. (Talbots) by two former Talbots employees,
individually and on behalf of a proposed class of employees, alleging various
violations of the California Labor Code (the Lopez Action). 1 Talbots sought
defense costs and indemnification for the Lopez Action from its insurer,
defendant AIG Specialty Insurance Company (AIG), which in turn denied
coverage under the terms of Talbots’ policy. Talbots responded by bringing
suit in this court, alleging breach of contract (Count I) and breach of the

That civil action, currently pending in Alameda County Superior
Court in California, is Ricardo Lopez, et al v. The Talbots, Inc., Case No.
RG15785672.
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implied covenant of good faith and fair dealing (Count II).2 AIG now moves
to dismiss the Complaint, arguing that the claims brought against Talbots in
the Lopez Action fall within various exclusions to the AIG Policy. The court
agrees and will grant the motion.
BACKGROUND3
Talbots is a specialty retailer and marketer of women’s apparel,
accessories, and shoes. In October of 2014, Talbots’ parent company, Tailor
Holdings, LLC (Tailor), purchased a Management Liability for Private
Companies policy from AIG (the Policy). The Policy, which applied to
Tailor’s subsidiaries (among them Talbots 4), included three separate

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favor.

Count III of the Complaint seeks a Declaratory Judgment in Talbots’

In addition to the allegations on the face of the Complaint, the court
may consider the text of the AIG Policy itself and the First Amended
Complaint in the Lopez Action (Lopez Complaint), as copies of these
documents were attached to Talbots’ Complaint and there is no dispute as to
their authenticity. See Ironshore Specialty Ins. Co. v. United States, --- F.3d
---, 2017 WL 4082071 at *2 (1st Cir. Sept. 15, 2017) (“[W]hen ‘a complaint’s
factual allegations are expressly linked to — and admittedly dependent upon
— a document (the authenticity of which is not challenged),’ then the court
can review it upon a motion to dismiss.”) (internal citation omitted); see also
Pollack v. Fed. Ins. Co., 2013 WL 6152335, at *1, n.2 (D. Mass. Nov. 21, 2013)
(“On motions to dismiss, courts can properly take into account documents
attached to or incorporated into the complaint.”).
3

AIG concedes, for purposes of this motion, that Talbots is an insured
under the policy “as a Subsidiary of Tailor Holdings, LLC.” Def.’s Mem., Dkt
# 9 at 3.
2
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coverage sections: 1) the Directors and Officers Liability Coverage Section
(the D&O Coverage Section); 2) the Employment Practices Liability
Coverage Section (the EPL Coverage Section); and 3) the Fiduciary Liability
Coverage Section. The parties agree that only the first two coverage sections
are implicated in the current dispute. The Policy, in effect from October 1,
2014, to October 1, 2015, was issued in Massachusetts.5
A. Policy Exclusions
Both the D&O Coverage Section and the EPL Coverage Section require
AIG to advance defense costs and pay losses incurred by an insured arising
from claims against the insured, subject to the exclusions and exceptions that
are at issue in this case. Exclusion 4(q) of the D&O Coverage Section
provides that AIG is not liable for “Loss in connection with any Claim made
against an Insured . . . alleging, arising out of, based upon, or attributable to
the employment of any individual or any employment practice, including,
but not limited to, wrongful dismissal, discharge or termination,
discrimination, retaliation or other employment-related claim.”

This

provision sweeps broadly: any claim against the insured “arising out of,

Talbots, a Delaware corporation, has its principal place of business in
Massachusetts. AIG is an Illinois corporation with its principal place of
business in New York.
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based upon, or attributable to” the insured’s employment practices is
excluded from coverage under the relevant section.
Although categorically excluded from the D&O Coverage Section, loss
and claims against the insured stemming from employment-related
practices are covered under the EPL Coverage Section. Section 2(b) covers
only enumerated species of actual or alleged Employment Practices
Violations:
(i)

wrongful dismissal, discharge or termination (either
actual or constructive) of employment, including
breach of an implied contract;

(ii)

harassment (including, but not limited to, sexual
harassment whether “quid pro quo”, hostile work
environment or other harassment in the workplace);

(iii)

discrimination (including, but not limited to,
discrimination based upon age, gender, race, color,
national origin, religion, sexual orientation or
preference, pregnancy or disability);

(iv)

retaliation (including, but not limited to, lockouts);

(v)

employment-related misrepresentations to an
Employee of the Company or applicant for
employment with the Company or an Outside Entity;
employment-related libel, slander, humiliation,
defamation or invasion of privacy;

(vi)
(vii)

wrongful failure to employ or promote;

(viii)

wrongful deprivation of career opportunity with the
Company, wrongful demotion or negligent Employee
evaluation, including, but not limited to, the giving of
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negative or defamatory statements in connection with
an employee reference;
(ix)

wrongful discipline;

(x)

failure to grant tenure; or

(xi)

with respect to any of the foregoing items (i) through
(x) of this definition: negligent hiring, retention,
training or supervision, infliction of emotional distress
or mental anguish, failure to provide or enforce
adequate or consistent corporate policies and
procedures, or violation of an individual’s civil
rights[.]

Coverage under the EPL Coverage Section is limited, however, by
Endorsement No. 1, which provides that AIG shall not be liable for any
payment for Loss in connection with any Claim brought against one of its
insureds:
for violation(s) of any of the responsibilities, obligations or
duties imposed by . . . the Fair Labor Standards Act [FLSA] . . .
any rules or regulations of the foregoing promulgated
thereunder, and amendments thereto or any similar federal,
state, local or foreign statutory law or common law.
It is acknowledged that Claims for violation(s) of any of the
responsibilities, obligations or duties imposed by “similar
federal, state, local or foreign statutory law or common law,” as
such quoted language is used in the immediately-preceding
paragraph, include, without limitation, any and all Claims
which in whole or in part allege, arise out of are based upon, are
attributable to, or are in any way related to any of the
circumstances described in any of the following:
(1) the refusal, failure or inability of any Insureds to pay wages
or overtime pay (or amounts representing such wages or
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overtime pay) for services rendered or time spent in connection
with work related activities (as opposed to tort-based back pay
or front pay damages for torts other than conversion);
(2) improper deductions from pay taken by any Insureds) from
any Employees) or purported Employee(s); or
(3) failure to provide or enforce legally required meal or rest
break periods[.]
In short, the EPL Section covers the listed types of employment claims in
Section 2(b), excluding the labor claims set out in Endorsement 1 –
including, most relevant to this case, state law analogs to the FLSA.
B. The Lopez Action
On September 16, 2015 – within the policy period – two former Talbots
employees filed a putative class action in California Superior Court against
Talbots, alleging nine violations of the California Labor Code. The specific
counts alleged in the complaint, and their corresponding provisions of the
California Labor Code, were as follows: 1) Unpaid Overtime (§§ 510 and
1198); 2) Unpaid Meal Period Premiums (§§ 226.7 and 512(a)); 3) Unpaid
Rest Period Premiums (§ 226.7); 4) Unpaid Minimum Wages (§§ 1194, 1197,
and 1197.1); 5) Final Wages Not Timely Paid (§§ 201 and 202); 6) Wages Not
Timely Paid During Employment (§ 204); 7) Non-Compliant Wage
Statements (§ 226(a)); 8) Failure to Keep Requisite Payroll Records (§
1174(d)); and 9) Unreimbursed Business Expenses (§§ 2800 and 2802). In
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Count 10, the Lopez plaintiffs also alleged that Talbots engaged in unfair
business practices in violation of Section 17200 of the California Business
and Professions Code because the alleged employment law violations
allowed Talbots to “unlawfully gain[] an unfair advantage over other
businesses.” Lopez Compl. ¶ 116. In broad terms, the Lopez Action alleged
that Talbots “engaged in a uniform policy and systematic scheme of wage
abuse against their hourly-paid or non-exempt employees within the State of
California,” a scheme that involved “inter alia, failing to pay them for all
hours worked, missed meal periods and rest breaks in violation of California
law.” Id. ¶ 27.
After Talbots notified AIG of the lawsuit, AIG denied coverage by letter
dated September 30, 2015. According to the Complaint, AIG took the
position that the Lopez Action did not constitute an employment claim as
defined by the EPL Coverage Section. Talbots asked AIG to reconsider its
position and to examine coverage under the D&O Section. AIG again denied
coverage, stating that coverage under the D&O Section was unavailable
because the Lopez Action triggered that section’s exclusion for claims
“alleging, arising out of, based upon, or attributable to” the employment
practices of the insured. This lawsuit followed.

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DISCUSSION
AIG moves to dismiss the Complaint for failure to state a claim. See
Fed. R. Civ. P. 12(b)(6). In order to survive such a motion, the complaint
must “contain sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
The parties agree that Massachusetts law governs the dispute. “Under
Massachusetts law, insurance-contract interpretations pose legal issues for
resolution by the court, and, absent ambiguity, insurance contracts are to be
enforced in accordance with their plain language.” Utica Mut. Ins. Co. v.
Weathermark Investments, Inc., 292 F.3d 77, 80 (1st Cir. 2002); see also
Hakim v. Massachusetts Insurers’ Insolvency Fund, 424 Mass. 275, 281
(1997) (“We read the policy as written and ‘are not free to revise it or change
the order of the words.’”) (quoting Continental Cas. Co. v. Gilbrane Bldg.
Co., 391 Mass. 143, 147 (1984)). “When the terms of an exclusion . . . are
plain and free from ambiguity the court does not construe them strictly
against the insurer.” Strange v. Genesis Ins. Co., 536 F. Supp. 2d 71, 74 (D.
Mass. 2008) As the First Circuit has observed, “[a] policy provision will not
be deemed ambiguous simply because the parties quibble over its meaning.
Rather, a policy provision is ambiguous only if it is susceptible of more than
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one meaning and reasonably intelligent persons would differ as to which
meaning is the proper one.” Certain Interested Underwriters at Lloyd’s,
London v. Stolberg, 680 F.3d 61, 66 (1st Cir. 2012).
Unsurprisingly, Talbots focuses primarily on Counts 5-10 of the Lopez
Action, essentially conceding that the wage and hour claims of Counts 1-4
trigger the Policy’s exclusionary clauses. See Pl.’s Opp’n, Dkt # 18 at 3-4
(protesting that AIG “has attempted to extend the exclusionary language in
the Policy to deny coverage for all claims in the Underlying Lawsuit, despite
the fact that the Underlying lawsuit brings separate and distinct claims
against Talbots that either do not have counterparts in the FLSA or are not
employment claims.”) The court has little difficulty concluding that claims
for unpaid overtime (Count 1), unpaid meal period premiums (Count 2),
unpaid rest period premiums (Count 3), and unpaid minimum wages (Count
4) are textbook examples of claims “arising out of, based upon, or
attributable to the employment” of individuals, D&O Exclusion 4(q), and
also allege “the refusal, failure or inability of any Insureds to pay wages or
overtime pay” and the “failure to provide or enforce legally required meal or
rest break periods,” as spelled out in Endorsement 1.

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There is also no traction to Talbots’ assertion that “there is clearly
coverage for at least Counts 5 through 10 of the Underlying Lawsuit.” Pl.’s
Opp’n at 4. Counts 5-9 allege violations of state labor regulations that govern
how employers must disburse wages, maintain records relating to
employees, and reimburse employees for business expenses. Talbots cites
no authority or persuasive rationale for the proposition that these claims do
not also “aris[e] out of,” or are “attributable to,” Talbots’ “employment of any
individual or any employment practice” under the terms of Section 4(q) of
the D&O Coverage Section.
Nor are the claims advanced in these counts included in the definition
of Employment Practice Violations in Section 2(b) of the EPL Coverage
Section. The court therefore finds that these claims, too, are not covered by
the Policy.
In a final attempt at a salvage operation 6, Talbots argues that Count 10
of the Lopez Action (alleging violations of the California Business and
Talbots also contends that AIG has taken inconsistent positions,
suggesting that the Lopez Action does not meet the definition of Employment
Practices Violation under the EPL Coverage Section, but does qualify as an
employment practice for purposes of Exclusion 4(q) of the D&O Coverage
Section. This argument is completely beside the point. The D&O Coverage
Section contains a broad exclusion for any claims arising out of employment
practices, presumably because there is a separate section of the policy (the
EPL Section) which deals with employment practices violations and defines
with specificity what forms of violations are covered under the policy.
6

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Professions Code) cannot be considered an employment-related claim under
the terms of the policy because the Lopez plaintiffs brought this Count as “a
private attorney general to enforce statutory unfair practices on behalf of the
general public and competitors and seek to recover statutory penalties and
attorney fees for conferring a public benefit.” Pl.’s Opp’n, Dkt #18 at 9.
However, Talbots makes no compelling argument for why this distinction
matters when interpreting the scope of the exclusionary clauses in the
insurance policy at issue. Furthermore, the unfair business practices claim
at issue in the Lopez Action alleges that Talbots gained an unfair advantage
over other businesses solely because of the employment-related violations
enumerated in Counts 1-9. In other words, Count 10 is merely an alternative
statutory theory of recovery for the same alleged injuries to Talbots’
employees – injuries which clearly arose out of the company’s employment
and labor practices.
Ultimately, this is not a case where the allegations in the California
Superior Court lawsuit “are ‘reasonably susceptible’ of an interpretation that
they state or adumbrate a claim covered by the policy terms.” Ruggerio
Reading the two provisions as complementary is consistent with the court’s
duty to “interpret the words of the standard policy in light of their plain
meaning, . . . giving full effect to the document as a whole,” Golchin v. Liberty
Mut. Ins. Co., 466 Mass. 156, 159-160 (2013).
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Ambulance Serv., Inc. v. Nat’l Grange Mut. Ins. Co., 430 Mass. 794, 796
(2000) (quoting Liberty Mut. Ins. Co. v. SCA Servs., Inc., 412 Mass. 330, 332
(1992)). To the contrary, the court finds that all of the claims made against
Talbots in the Lopez Action are either directly tied to, or a natural outgrowth
of, the company’s employment and labor practices.

Because Talbots

purchased an insurance policy that specifically excluded coverage for such
claims, AIG did not breach the duty to defend or indemnify.
ORDER
For the foregoing reasons, AIG’s motion to dismiss is ALLOWED.
SO ORDERED.
/s/ Richard G. Stearns
__________________________
UNITED STATES DISTRICT JUDGE

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