Twin City Fire Wins Appeal Over Wage and Hour Policy Exclusion

The case of Twin City Fire Insurance Co. v. Glenn O. Hawbaker, Inc. involved an insurance coverage dispute over claims arising from alleged violations of prevailing wage laws. Glenn O. Hawbaker, Inc. (GOH), a construction company, was accused of misappropriating fringe benefit payments owed to its employees under the Pennsylvania Prevailing Wage Act (PWA) and the Davis-Bacon Act (DBA). Twin City Fire Insurance Company denied coverage under GOH’s policy, leading to litigation. The United States Court of Appeals for the Third Circuit affirmed the district court’s ruling that Twin City had no duty to defend or indemnify GOH for the underlying class-action lawsuits.

Background and Legal Issues

GOH performed work on numerous public works projects subject to prevailing wage laws. Under these laws, contractors were required to pay employees a specified combination of hourly wages and fringe benefits. Between 2015 and 2018, GOH was alleged to have misallocated approximately $20.7 million in fringe benefits, using these funds to cover costs for all employees rather than distributing them exclusively to prevailing wage workers.

Following criminal proceedings in which GOH pleaded no contest and agreed to pay restitution, two class-action lawsuits were filed against the company and its board of directors. The claims included:

• Breach of contract for failing to pay wages and benefits owed under the PWA and DBA.
• Violations of ERISA, alleging that GOH and its fiduciaries mishandled retirement plan contributions.
• Violations of Pennsylvania’s Wage Payment and Collection Law, asserting wrongful withholding of employee wages.

GOH sought coverage under its insurance policy with Twin City, which included fiduciary liability coverage. Twin City denied coverage, arguing that the claims fell under policy exclusions for "Wage and Hour Violations." Twin City then filed suit seeking a declaratory judgment confirming it had no duty to defend or indemnify GOH.

Court’s Analysis and Findings

The Third Circuit upheld the district court’s findings, concluding that:

• The claims were related to "Wage and Hour Violations." The insurance policy explicitly excluded coverage for claims "based upon, arising from, or in any way related to" violations of wage laws, including prevailing wage statutes.
• ERISA-related claims did not circumvent the exclusion. The court rejected GOH’s argument that the misallocation of funds into retirement accounts constituted a fiduciary breach separate from wage law violations. Instead, it found that the alleged misconduct was fundamentally tied to wage underpayment.
• Broad policy exclusions applied. The court interpreted the policy’s exclusion language broadly, noting that it encompassed not only direct wage violations but also any claims linked to such violations.
• No duty to defend or indemnify. Because all claims in the underlying lawsuits were at least "in some way related to" wage and hour violations, Twin City had no contractual obligation to cover GOH’s legal expenses or liability.

Conclusion and Ruling

The Third Circuit affirmed the district court’s ruling, holding that Twin City had no duty to defend or indemnify GOH for the class-action lawsuits. The decision underscores the importance of reviewing insurance policy exclusions carefully, particularly when dealing with employment-related claims.

Legal Guidance for Government Contractors

Navigating wage laws and government contract compliance can present legal challenges. Our team at Whitcomb, Selinsky, PC assists clients with prevailing wage compliance, government contracting disputes, and regulatory matters.