1017-00004 · Entities. Aurelius Global Media Group · Insurance

pemberton-settlement-authorization.docx DOCUMENT Finance & Banking

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PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

THORNHILL & READE LLP Counselors at Law

One Constitution Plaza, Suite 2200 Hartford, Connecticut 06103 Telephone: (860) 714-3300 Facsimile: (860) 714-3301 www.thornhillreade.com

Margaret L. Ashworth Direct Dial: (860) 714-3318 mashworth@thornhillreade.com

September 13, 2023

VIA EMAIL AND CERTIFIED MAIL

Bernard Crawford, Esq. Partner Calderwood & Harkness LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017

Re: Settlement Contribution Authorization — Employment Practices Liability Policy No. PMA-EPL-2022-00837; Named Insured: Aurelius Media Americas Inc.; Claim: Fuentes v. Aurelius Media Americas Inc., LASC Case No. 22STCV38214 (Consolidated)

Dear Mr. Crawford:

I. Opening and Identification

This firm writes as coverage counsel for Pemberton Mutual Assurance Co. ("Pemberton") in connection with the above-referenced claim. We are in receipt of your firm's letter dated August 20, 2023, which provided updated claim information and identified the range of the pending settlement demand, as well as your subsequent letter dated September 10, 2023, in which you transmitted AMA's formal consent to the proposed settlement terms and requested confirmation of Pemberton's authorization for a policy contribution toward the settlement fund. We appreciate the thoroughness of your correspondence and the supporting documentation you have provided throughout this process.

This letter addresses the employment practices liability coverage afforded under Employment Practices Liability Policy No. PMA-EPL-2022-00837 (the "Policy"), issued by Pemberton to Aurelius Media Americas Inc. ("AMA") for the policy period of July 1, 2022 through June 30, 2023. As you are aware, the Policy provides for a self-insured retention ("SIR") of Five Million Dollars ($5,000,000) and an aggregate limit of liability of Fifteen Million Dollars ($15,000,000). All capitalized terms not defined herein shall have the meanings ascribed to them in the Policy unless otherwise indicated.

II. Background and Claim Status

As an initial matter, Pemberton acknowledges its December 22, 2022 letter to AMA and its counsel, in which Pemberton confirmed acknowledgment of coverage for the Fuentes v. Aurelius Media Americas Inc. class action and Private Attorneys General Act ("PAGA") representative claims, subject to a full reservation of rights as set forth therein. The terms of that reservation of rights letter remain in effect, and Pemberton's positions as articulated therein are incorporated by reference into this correspondence except as expressly modified below with respect to the authorized settlement contribution.

Pemberton has continued to monitor the progress of this litigation and has reviewed the significant procedural and substantive developments that have occurred since its initial acknowledgment of coverage. In particular, Pemberton notes that the Honorable Raymond Escobedo, Department 34, Los Angeles Superior Court, entered an order on August 11, 2023, granting in part and denying in part Plaintiffs' motion for class certification. The Court certified a class on the following claims: (i) the first meal period auto-deduction claim, arising from AMA's use of the TimeTrack Pro timekeeping system to automatically deduct thirty (30) minutes from employees' daily time records regardless of whether a full, uninterrupted meal period was actually taken; (ii) the derivative wage statement claim under California Labor Code § 226, premised on the theory that the auto-deductions resulted in inaccurate itemized wage statements; and (iii) the derivative Unfair Competition Law claim under California Business and Professions Code § 17200 et seq. The Court denied certification on the remaining claims, including the rest period claims, the off-the-clock/overtime claims, the minimum wage claims, the second meal period claims, and the waiting time penalty claims under California Labor Code §§ 201–203, finding that those claims presented individualized issues that predominated over common questions.

Pemberton further notes that a PAGA representative claim has proceeded alongside the certified class claims and remains pending. The PAGA claim encompasses alleged violations that overlap substantially with both the certified and non-certified class claims, presenting additional exposure and litigation risk to AMA beyond the scope of the certified class action alone.

It is Pemberton's understanding that following the partial certification order, the parties engaged in two full-day mediation sessions—the first on August 25, 2023 and the second on September 8, 2023—before the Honorable Patricia Okoro (Ret.) of Westpark Dispute Resolution Inc. Judge Okoro is widely recognized as one of the most experienced employment class action mediators in the Southern California legal community, and Pemberton is satisfied that her involvement lends significant credibility to the arm's-length character of the negotiations. Pemberton has reviewed correspondence from your firm and from class counsel confirming that the mediation sessions were hard-fought and that the parties did not reach agreement until the conclusion of the second session, at which point a mediator's proposal was accepted by both sides.

Pemberton has been provided with and has reviewed the Class Action Settlement Agreement and Release (the "Settlement Agreement"), which was fully executed by the parties on September 15, 2023. Pemberton's analysis of the settlement terms and its authorization set forth below are based upon the terms of the Settlement Agreement as executed.

III. Settlement Terms Reviewed

Pemberton has conducted a thorough review of the Settlement Agreement and notes the following material terms for purposes of this authorization:

Gross Settlement Amount. The Gross Settlement Amount ("GSA") is Fourteen Million Seven Hundred Fifty Thousand Dollars ($14,750,000), structured as a non-reversionary common fund. Pursuant to the terms of the Settlement Agreement, the entire GSA will be deposited into a qualified settlement fund regardless of the number of class members who submit valid claims, and no portion of the fund will revert to AMA.

Class Definition. The settlement class is defined as all current and former non-exempt, hourly employees of Aurelius Media Americas Inc. who worked at any location in the State of California at any time during the period from November 1, 2018 through October 31, 2023, and who were subject to the TimeTrack Pro automatic meal period deduction policy during their employment. The estimated class size is approximately 1,850 individuals, based on AMA's payroll and human resources records as produced during discovery.

PAGA Payment. The Settlement Agreement allocates Seven Hundred Fifty Thousand Dollars ($750,000) of the GSA to the resolution of the PAGA representative claims. Pursuant to California Labor Code § 2699(i) and the applicable PAGA allocation framework, seventy-five percent (75%) of the PAGA payment—totaling Five Hundred Sixty-Two Thousand Five Hundred Dollars ($562,500)—will be remitted to the California Labor and Workforce Development Agency ("LWDA"), and the remaining twenty-five percent (25%)—totaling One Hundred Eighty-Seven Thousand Five Hundred Dollars ($187,500)—will be distributed to the aggrieved employees on a pro rata basis.

Attorneys' Fees and Costs. Class counsel will petition the Court for an award of attorneys' fees in the amount of thirty-three and one-third percent (33.33%) of the GSA, which equals Four Million Nine Hundred Sixteen Thousand One Hundred Seventy-Five Dollars ($4,916,175). In addition, class counsel will seek reimbursement of litigation costs in an amount not to exceed Four Hundred Twelve Thousand Three Hundred Dollars ($412,300). Pemberton notes that the fee percentage is within the range commonly approved by California courts in employment class actions of this nature and complexity.

Service Awards. The Settlement Agreement contemplates the following service awards (also referred to as incentive awards) to the named plaintiffs, subject to Court approval: Marisol Fuentes — Fifteen Thousand Dollars ($15,000); Derek Halloran — Ten Thousand Dollars ($10,000); and Yesenia Padilla — Ten Thousand Dollars ($10,000), for a total of Thirty-Five Thousand Dollars ($35,000).

Settlement Administration. Meridian Settlement Services LLC has been designated as the claims administrator for the settlement. The estimated cost of settlement administration, including class notice, claims processing, tax reporting, and distribution, is Three Hundred Eighty-Five Thousand Dollars ($385,000), to be paid from the GSA.

Net Settlement Fund. After deduction of the foregoing amounts—attorneys' fees ($4,916,175), litigation costs ($412,300), service awards ($35,000), settlement administration ($385,000), and the LWDA share of the PAGA payment ($562,500)—the estimated Net Settlement Fund available for distribution to participating class members is approximately Eight Million Two Hundred Fifty-One Thousand Five Hundred Twenty-Five Dollars ($8,251,525). Individual distributions will be calculated on a pro rata basis using each class member's compensable workweeks during the class period, as determined from AMA's payroll data.

Release. The Settlement Agreement provides for a broad release of all class and PAGA claims asserted or that could have been asserted in the litigation, including claims relating to the non-certified causes of action (i.e., rest period violations, off-the-clock work, overtime violations, minimum wage violations, second meal period violations, and waiting time penalties). The release also encompasses derivative claims for unfair business practices, wage statement violations, and civil penalties. Pemberton views the breadth of the release as a significant benefit of the settlement, as it effectively resolves all employment-related exposure arising from the TimeTrack Pro auto-deduction practice during the class period.

No Admission of Liability. The Settlement Agreement expressly provides that AMA does not admit any liability, wrongdoing, or violation of law in connection with the settlement, and that the settlement is entered into solely for the purpose of resolving disputed claims and avoiding the expense, uncertainty, and burden of continued litigation.

IV. Consent to Settlement

Having reviewed the Settlement Agreement, the litigation record, and the relevant coverage considerations, Pemberton hereby consents to the proposed class settlement on the terms set forth in the Settlement Agreement as executed on September 15, 2023.

Pemberton has evaluated the reasonableness of the settlement amount in light of the totality of the circumstances and has concluded that the GSA of $14,750,000 falls within the range of reasonable outcomes for a matter of this nature and scope. In reaching this conclusion, Pemberton has considered the following factors:

First, the partial certification order entered by Judge Escobedo on August 11, 2023 significantly increased AMA's litigation exposure on the certified claims. The automatic meal period deduction claim—the centerpiece of the litigation—was found by the Court to present common questions susceptible to class-wide proof, and the Court's order included detailed findings regarding the uniform application of the TimeTrack Pro system across AMA's California workforce. Had the case proceeded to trial on the certified claims alone, AMA faced substantial risk of an adverse verdict on a class-wide basis.

Second, although certification was denied on several claims, the broad release obtained in the Settlement Agreement resolves those non-certified claims as well, providing AMA with finality and materially reducing the risk of future individual or representative litigation arising from the same conduct during the class period.

Third, the PAGA representative claim presented an independent and significant source of exposure, including the potential for substantial civil penalties that could have been assessed on a per-employee, per-pay-period basis.

Fourth, the settlement was negotiated at arm's length over the course of two full-day mediation sessions before an experienced and well-regarded neutral, the Honorable Patricia Okoro (Ret.), following extensive discovery. The record reflects that AMA produced approximately 147,832 documents during discovery and that eighteen (18) depositions were taken by the parties, including depositions of AMA's human resources leadership, IT personnel responsible for the TimeTrack Pro system, and multiple class representative and class member witnesses. Both sides retained and exchanged competing expert analyses on damages, including statistical analyses of the payroll data and expert opinions on the operation and configuration of the TimeTrack Pro auto-deduction feature.

Fifth, the settlement avoids the risk and expense of continued litigation, including the costs of a class action trial, post-trial motions, and potential appellate proceedings, all of which would have consumed significant additional defense costs chargeable against the SIR and potentially eroding the Policy limits.

Pemberton's consent to this settlement is provided pursuant to the settlement consent provisions set forth in Section VII.B of the Policy, which require the insurer's prior written consent before the insured may bind the insurer to any settlement or compromise of a covered claim.

V. Authorization of Policy Contribution

Pursuant to the foregoing, Pemberton hereby authorizes a contribution of Nine Million Two Hundred Fifty Thousand Dollars ($9,250,000) toward the Gross Settlement Amount of $14,750,000.

This contribution represents Pemberton's share of the settlement above the $5,000,000 self-insured retention. Pemberton notes that AMA has incurred approximately Three Million One Hundred Thousand Dollars ($3,100,000) in defense costs through September 2023 in connection with the Fuentes litigation. AMA's self-funded settlement share will be Five Million Five Hundred Thousand Dollars ($5,500,000), which is the difference between the GSA of $14,750,000 and Pemberton's authorized contribution of $9,250,000. Accordingly, AMA's total expenditure attributable to the Fuentes claim—comprising $3,100,000 in defense costs and $5,500,000 in settlement contribution—will be approximately $8,600,000, which is well in excess of the $5,000,000 SIR. Pemberton is satisfied that the SIR has been fully exhausted by AMA's defense costs and settlement expenditures, and that Pemberton's obligation to contribute toward the settlement has been triggered.

Following the payment of this $9,250,000 contribution, the remaining aggregate Policy limit available under Policy No. PMA-EPL-2022-00837 will be Five Million Seven Hundred Fifty Thousand Dollars ($5,750,000), calculated as follows: $15,000,000 aggregate limit minus $9,250,000 settlement contribution equals $5,750,000. This remaining limit will be available for any future covered claims arising during the July 1, 2022 through June 30, 2023 Policy period, subject to all terms, conditions, and exclusions of the Policy.

VI. PAGA Allocation

Pemberton acknowledges that the Settlement Agreement allocates Seven Hundred Fifty Thousand Dollars ($750,000) of the GSA to the resolution of the PAGA representative claims, representing approximately 5.1% of the total settlement amount.

As set forth in Pemberton's December 22, 2022 reservation of rights letter, Pemberton expressly reserved its right to deny coverage for PAGA penalties on the grounds that such penalties may constitute "fines or penalties imposed by law" within the meaning of the Policy's Penalty Exclusion, set forth at Section IV.F of the Policy. The Penalty Exclusion provides, in relevant part, that the Policy does not apply to any claim for, or any loss arising out of, the imposition of any fine, penalty, or sanction imposed by operation of law, statute, regulation, or order of any governmental body, agency, or official. Pemberton has maintained, and continues to maintain, that PAGA civil penalties are appropriately characterized as penalties imposed by statute within the scope of this exclusion.

However, in the interest of achieving a global resolution of all claims arising from the Fuentes litigation and in recognition of the fact that the PAGA allocation is modest in both absolute terms ($750,000) and as a percentage of the overall GSA (5.1%), Pemberton has determined that it will not insist on a carve-out of the PAGA component from its authorized contribution in this particular instance. Pemberton's authorized contribution of $9,250,000 is therefore inclusive of a pro rata share of the PAGA settlement component, and Pemberton will not seek to reduce its contribution on the basis of the PAGA allocation.

Pemberton emphasizes that this decision is specific to the facts and circumstances of the Fuentes v. AMA claim, including the relative size of the PAGA allocation, the structure of the settlement, and the importance of resolving all claims in a single transaction. This decision shall not be construed as a waiver of Pemberton's rights under the Penalty Exclusion (§ IV.F) of the Policy in connection with any future claims, any other matter involving AMA or any other insured, or any renewal or successor policy. Pemberton expressly reserves all of its rights under the Penalty Exclusion for all other purposes, and this letter shall not be cited as precedent or evidence of Pemberton's willingness to cover PAGA penalties or any other statutory penalties in any other context.

VII. Conditions of Contribution

Pemberton's authorized contribution of Nine Million Two Hundred Fifty Thousand Dollars ($9,250,000) is expressly conditioned upon the satisfaction of each of the following conditions:

1. Final Approval Order. The Superior Court of the State of California, County of Los Angeles, shall enter a Final Approval Order and Judgment approving the settlement with prejudice and releasing all class and PAGA claims asserted against AMA in the Fuentes litigation. The Final Approval Order must be entered on terms that are substantively consistent with the Settlement Agreement as executed on September 15, 2023, and must constitute a final, appealable order disposing of all claims in the consolidated action.

2. Binding Release. The Final Approval Order must include, or incorporate by reference, a release that is binding on all class members who do not timely and validly opt out of the settlement, encompassing all claims within the scope of the release provisions set forth in the Settlement Agreement, including without limitation the PAGA representative claims and all non-certified class claims. The release must be sufficient to preclude any future litigation by participating class members against AMA arising from the conduct at issue during the class period.

3. No Material Modification. The material terms of the Settlement Agreement—including without limitation the Gross Settlement Amount, the class definition, the class period, the scope of the release, and the PAGA allocation—shall not be materially modified, amended, or supplemented without Pemberton's prior written consent. For the avoidance of doubt, adjustments to the allocation of attorneys' fees, service awards, or settlement administration costs that do not affect the GSA or the scope of the release shall not be deemed material modifications requiring Pemberton's consent.

4. Opt-Out Threshold. In the event that the number of valid and timely opt-outs from the settlement class exceeds five percent (5%) of the estimated class size (approximately ninety-three (93) individuals based on the estimated class of 1,850 members), and AMA exercises its right to void the settlement pursuant to the "blow" provision or walk-away right set forth in the Settlement Agreement, Pemberton's authorization of the $9,250,000 contribution shall be deemed automatically withdrawn, pending renegotiation of the settlement terms. In such event, Pemberton reserves the right to reassess the reasonableness of any renegotiated settlement and to impose additional conditions on any revised contribution authorization.

5. Funding Timeline. Pemberton will fund its $9,250,000 contribution within fourteen (14) calendar days following the entry of the Final Approval Order by the Court. Payment will be made by wire transfer to the qualified settlement fund escrow account designated by the claims administrator, Meridian Settlement Services LLC, located at 1600 E. Fourth Street, Suite 240, Santa Ana, California 92701, or to such other account as may be jointly directed in writing by AMA and its counsel of record. Pemberton will coordinate the wire transfer through its claims department and will provide written confirmation of the transfer to Calderwood & Harkness LLP and to Kestrel Risk Advisors Ltd. upon completion.

In the event any of the foregoing conditions are not satisfied, Pemberton reserves the right to withhold, modify, or withdraw its authorized contribution, and nothing in this letter shall be construed as obligating Pemberton to fund any contribution absent the full satisfaction of each condition set forth above.

VIII. Reservation of Rights — Willful Violations

Pemberton notes that its December 22, 2022 reservation of rights letter also expressly reserved Pemberton's rights regarding coverage for damages attributable to "willful" violations of the California Labor Code, pursuant to the Policy's Intentional Acts Exclusion set forth at Section IV.A of the Policy. The Intentional Acts Exclusion provides that the Policy does not apply to any claim arising out of, based upon, or attributable to any intentional, willful, or deliberate act or omission by any insured, including any knowing violation of law.

Pemberton has reviewed the Settlement Agreement and notes that it contains no admission of liability by AMA, no finding or adjudication of willful misconduct by AMA, and no allocation of any portion of the settlement amount to willful or intentional violations of the California Labor Code. On that basis, and in consideration of the fact that the settlement resolves disputed claims without any determination of willfulness, Pemberton does not assert the Intentional Acts Exclusion (§ IV.A) as a ground for declining to contribute to this settlement or for reducing its authorized contribution.

Pemberton expressly reserves the Intentional Acts Exclusion for all other purposes, including without limitation in connection with any future claims against AMA or any other insured under the Policy, and in connection with any claim in which a court or other tribunal makes a finding or determination of willful or intentional misconduct.

IX. Aldrich Executive Dispute — Coverage Denial Reaffirmed

Pemberton takes this opportunity to reaffirm its December 22, 2022 denial of coverage for the separate matter styled Aldrich v. Aurelius Media Americas Inc., Los Angeles Superior Court Case No. 22STCV41087 (the "Aldrich Matter"). This settlement contribution authorization pertains solely and exclusively to the Fuentes class action and the associated PAGA claims, and no portion of Pemberton's authorized $9,250,000 contribution shall be applied to or deemed to cover any aspect of the Aldrich Matter.

As stated in Pemberton's prior correspondence, coverage for the Aldrich Matter has been denied on the following independent grounds:

(i) Insured v. Insured Exclusion (§ IV.C). The Aldrich Matter involves claims brought by a former senior executive of AMA against the company and certain of its officers and directors. The claims fall squarely within the Policy's Insured v. Insured Exclusion, which precludes coverage for claims brought by or on behalf of any insured person against any other insured person or against the named insured entity.

(ii) Offensive Litigation / Affirmative Cross-Claims. AMA has asserted affirmative cross-claims and counterclaims against Mr. Aldrich in the Aldrich Matter, including claims for breach of fiduciary duty, breach of the duty of loyalty, and conversion of corporate property. These affirmative claims constitute offensive litigation initiated by AMA for the protection of its business interests and fall outside the scope of the Policy's defense coverage, which is limited to the defense of covered claims brought against the insured.

(iii) Nature of Claims. The restrictive covenant, non-solicitation, and trade secret claims at issue in the Aldrich Matter relate to AMA's proprietary business interests, competitive positioning, and the enforcement of contractual restrictions on a departing executive. These claims do not arise from covered "Employment Practices" as that term is defined in Section II.H of the Policy, which is limited to wrongful termination, discrimination, harassment, retaliation, and related employment-related wrongful acts.

Pemberton does not authorize any contribution toward the defense costs, settlement, judgment, or other resolution of the Aldrich Matter, and AMA's ongoing defense of and prosecution of claims in the Aldrich Matter remain entirely at AMA's own cost and expense.

X. Reporting and Cooperation

In connection with the ongoing administration of this claim and Pemberton's authorized contribution, Pemberton respectfully requests that Calderwood & Harkness LLP provide Pemberton with copies of the following documents as they become available in the ordinary course of the Fuentes settlement approval process:

• The Preliminary Approval Order, if not already provided to Pemberton or its counsel;

• The Class Notice, including both the long-form notice and the summary notice or postcard notice to be mailed or otherwise distributed to class members;

• Any objections filed by class members, together with a summary of the grounds for objection;

• Opt-out data, including the total number of valid and timely opt-outs and any analysis of the opt-out rate relative to the 5% threshold described in Section VII above;

• The Motion for Final Approval and all supporting papers, including any supplemental declaration from the claims administrator regarding the claims rate and distribution methodology;

• The Final Approval Order and Judgment, promptly upon entry by the Court.

Pemberton further requests that all monthly defense cost invoices submitted by Calderwood & Harkness LLP and any other defense counsel retained in connection with the Fuentes matter continue to be submitted through AMA's insurance broker, Kestrel Risk Advisors Ltd. (Attention: Samuel Okonkwo, Managing Director, One Broadgate, London EC2M 2QS, United Kingdom), in accordance with the established billing protocols. Pemberton's claims department will continue to review and process invoices in the ordinary course through the conclusion of the settlement administration process.

XI. No Waiver

Nothing in this letter shall be construed as a waiver, estoppel, or relinquishment of any of Pemberton's rights, defenses, or remedies under the Policy or at law or in equity, including but not limited to Pemberton's rights under the Penalty Exclusion (§ IV.F), the Intentional Acts Exclusion (§ IV.A), the Insured v. Insured Exclusion (§ IV.C), and all other terms, conditions, limitations, and exclusions of the Policy. Pemberton's consent to this settlement and its authorization of the $9,250,000 contribution described herein are specific to the facts and circumstances of the Fuentes v. Aurelius Media Americas Inc. class action (LASC Case No. 22STCV38214) and the associated PAGA representative claims, and shall not establish any precedent, course of dealing, or custom or practice regarding Pemberton's coverage positions, consent obligations, or contribution levels in any other matter, whether involving AMA or any other insured under the Policy or any other policy issued by Pemberton.

Pemberton expressly reserves the right to assert any and all coverage defenses, exclusions, limitations, and conditions in connection with any future claims, and the positions set forth in this letter shall be interpreted strictly in accordance with their terms and shall not be extended by implication or analogy to any other matter.

XII. Closing

Pemberton appreciates the professional and diligent handling of this matter by Calderwood & Harkness LLP and by AMA's in-house legal team. The complexity of this litigation and the skill with which the defense and settlement negotiations were conducted have contributed to a resolution that Pemberton believes serves the interests of all parties. Pemberton looks forward to the successful completion of the settlement approval process and stands ready to fund its contribution promptly upon satisfaction of the conditions set forth herein.

Should you have any questions regarding this authorization, the conditions set forth above, or any other coverage matter relating to this claim, please do not hesitate to contact the undersigned directly at the number and email address listed below.

Very truly yours,

THORNHILL & READE LLP

By: ________

Margaret L. Ashworth Partner Coverage Counsel for Pemberton Mutual Assurance Co.

Direct Dial: (860) 714-3318

Email: mashworth@thornhillreade.com

cc: (via email)

Gregory Tanaka, Vice President, Legal & Compliance Aurelius Media Americas Inc. 8500 Sunset Boulevard, Suite 1400 West Hollywood, California 90069

Samuel Okonkwo, Managing Director Kestrel Risk Advisors Ltd. One Broadgate London EC2M 2QS, United Kingdom

Renata Vasquez, Partner Calderwood & Harkness LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017

Pemberton Mutual Assurance Co. Claims Department 3400 Asylum Avenue Hartford, Connecticut 06105

Attn: Senior Claims Examiner — EPL Division

This letter and its contents are privileged and confidential, intended solely for the use of the addressees and the individuals and entities copied herein. Any unauthorized review, use, disclosure, or distribution is prohibited. If you have received this communication in error, please notify the sender immediately and destroy all copies.

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
THORNHILL & READE LLP Counselors at Law
One Constitution Plaza, Suite 2200 Hartford, Connecticut 06103 Telephone: (860) 714-3300 Facsimile: (860) 714-3301 www.thornhillreade.com
Margaret L. Ashworth Direct Dial: (860) 714-3318 mashworth@thornhillreade.com
September 13, 2023
VIA EMAIL AND CERTIFIED MAIL
Bernard Crawford, Esq. Partner Calderwood & Harkness LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017
Re: Settlement Contribution Authorization — Employment Practices Liability Policy No. PMA-EPL-2022-00837; Named Insured: Aurelius Media Americas Inc.; Claim: Fuentes v. Aurelius Media Americas Inc., LASC Case No. 22STCV38214 (Consolidated)
Dear Mr. Crawford:
I. Opening and Identification
This firm writes as coverage counsel for Pemberton Mutual Assurance Co. ("Pemberton") in connection with the above-referenced claim. We are in receipt of your firm's letter dated August 20, 2023, which provided updated claim information and identified the range of the pending settlement demand, as well as your subsequent letter dated September 10, 2023, in which you transmitted AMA's formal consent to the proposed settlement terms and requested confirmation of Pemberton's authorization for a policy contribution toward the settlement fund. We appreciate the thoroughness of your correspondence and the supporting documentation you have provided throughout this process.
This letter addresses the employment practices liability coverage afforded under Employment Practices Liability Policy No. PMA-EPL-2022-00837 (the "Policy"), issued by Pemberton to Aurelius Media Americas Inc. ("AMA") for the policy period of July 1, 2022 through June 30, 2023. As you are aware, the Policy provides for a self-insured retention ("SIR") of Five Million Dollars ($5,000,000) and an aggregate limit of liability of Fifteen Million Dollars ($15,000,000). All capitalized terms not defined herein shall have the meanings ascribed to them in the Policy unless otherwise indicated.
II. Background and Claim Status
As an initial matter, Pemberton acknowledges its December 22, 2022 letter to AMA and its counsel, in which Pemberton confirmed acknowledgment of coverage for the Fuentes v. Aurelius Media Americas Inc. class action and Private Attorneys General Act ("PAGA") representative claims, subject to a full reservation of rights as set forth therein. The terms of that reservation of rights letter remain in effect, and Pemberton's positions as articulated therein are incorporated by reference into this correspondence except as expressly modified below with respect to the authorized settlement contribution.
Pemberton has continued to monitor the progress of this litigation and has reviewed the significant procedural and substantive developments that have occurred since its initial acknowledgment of coverage. In particular, Pemberton notes that the Honorable Raymond Escobedo, Department 34, Los Angeles Superior Court, entered an order on August 11, 2023, granting in part and denying in part Plaintiffs' motion for class certification. The Court certified a class on the following claims: (i) the first meal period auto-deduction claim, arising from AMA's use of the TimeTrack Pro timekeeping system to automatically deduct thirty (30) minutes from employees' daily time records regardless of whether a full, uninterrupted meal period was actually taken; (ii) the derivative wage statement claim under California Labor Code § 226, premised on the theory that the auto-deductions resulted in inaccurate itemized wage statements; and (iii) the derivative Unfair Competition Law claim under California Business and Professions Code § 17200 et seq. The Court denied certification on the remaining claims, including the rest period claims, the off-the-clock/overtime claims, the minimum wage claims, the second meal period claims, and the waiting time penalty claims under California Labor Code §§ 201–203, finding that those claims presented individualized issues that predominated over common questions.
Pemberton further notes that a PAGA representative claim has proceeded alongside the certified class claims and remains pending. The PAGA claim encompasses alleged violations that overlap substantially with both the certified and non-certified class claims, presenting additional exposure and litigation risk to AMA beyond the scope of the certified class action alone.
It is Pemberton's understanding that following the partial certification order, the parties engaged in two full-day mediation sessions—the first on August 25, 2023 and the second on September 8, 2023—before the Honorable Patricia Okoro (Ret.) of Westpark Dispute Resolution Inc. Judge Okoro is widely recognized as one of the most experienced employment class action mediators in the Southern California legal community, and Pemberton is satisfied that her involvement lends significant credibility to the arm's-length character of the negotiations. Pemberton has reviewed correspondence from your firm and from class counsel confirming that the mediation sessions were hard-fought and that the parties did not reach agreement until the conclusion of the second session, at which point a mediator's proposal was accepted by both sides.
Pemberton has been provided with and has reviewed the Class Action Settlement Agreement and Release (the "Settlement Agreement"), which was fully executed by the parties on September 15, 2023. Pemberton's analysis of the settlement terms and its authorization set forth below are based upon the terms of the Settlement Agreement as executed.
III. Settlement Terms Reviewed
Pemberton has conducted a thorough review of the Settlement Agreement and notes the following material terms for purposes of this authorization:
Gross Settlement Amount. The Gross Settlement Amount ("GSA") is Fourteen Million Seven Hundred Fifty Thousand Dollars ($14,750,000), structured as a non-reversionary common fund. Pursuant to the terms of the Settlement Agreement, the entire GSA will be deposited into a qualified settlement fund regardless of the number of class members who submit valid claims, and no portion of the fund will revert to AMA.
Class Definition. The settlement class is defined as all current and former non-exempt, hourly employees of Aurelius Media Americas Inc. who worked at any location in the State of California at any time during the period from November 1, 2018 through October 31, 2023, and who were subject to the TimeTrack Pro automatic meal period deduction policy during their employment. The estimated class size is approximately 1,850 individuals, based on AMA's payroll and human resources records as produced during discovery.
PAGA Payment. The Settlement Agreement allocates Seven Hundred Fifty Thousand Dollars ($750,000) of the GSA to the resolution of the PAGA representative claims. Pursuant to California Labor Code § 2699(i) and the applicable PAGA allocation framework, seventy-five percent (75%) of the PAGA payment—totaling Five Hundred Sixty-Two Thousand Five Hundred Dollars ($562,500)—will be remitted to the California Labor and Workforce Development Agency ("LWDA"), and the remaining twenty-five percent (25%)—totaling One Hundred Eighty-Seven Thousand Five Hundred Dollars ($187,500)—will be distributed to the aggrieved employees on a pro rata basis.
Attorneys' Fees and Costs. Class counsel will petition the Court for an award of attorneys' fees in the amount of thirty-three and one-third percent (33.33%) of the GSA, which equals Four Million Nine Hundred Sixteen Thousand One Hundred Seventy-Five Dollars ($4,916,175). In addition, class counsel will seek reimbursement of litigation costs in an amount not to exceed Four Hundred Twelve Thousand Three Hundred Dollars ($412,300). Pemberton notes that the fee percentage is within the range commonly approved by California courts in employment class actions of this nature and complexity.
Service Awards. The Settlement Agreement contemplates the following service awards (also referred to as incentive awards) to the named plaintiffs, subject to Court approval: Marisol Fuentes — Fifteen Thousand Dollars ($15,000); Derek Halloran — Ten Thousand Dollars ($10,000); and Yesenia Padilla — Ten Thousand Dollars ($10,000), for a total of Thirty-Five Thousand Dollars ($35,000).
Settlement Administration. Meridian Settlement Services LLC has been designated as the claims administrator for the settlement. The estimated cost of settlement administration, including class notice, claims processing, tax reporting, and distribution, is Three Hundred Eighty-Five Thousand Dollars ($385,000), to be paid from the GSA.
Net Settlement Fund. After deduction of the foregoing amounts—attorneys' fees ($4,916,175), litigation costs ($412,300), service awards ($35,000), settlement administration ($385,000), and the LWDA share of the PAGA payment ($562,500)—the estimated Net Settlement Fund available for distribution to participating class members is approximately Eight Million Two Hundred Fifty-One Thousand Five Hundred Twenty-Five Dollars ($8,251,525). Individual distributions will be calculated on a pro rata basis using each class member's compensable workweeks during the class period, as determined from AMA's payroll data.
Release. The Settlement Agreement provides for a broad release of all class and PAGA claims asserted or that could have been asserted in the litigation, including claims relating to the non-certified causes of action (i.e., rest period violations, off-the-clock work, overtime violations, minimum wage violations, second meal period violations, and waiting time penalties). The release also encompasses derivative claims for unfair business practices, wage statement violations, and civil penalties. Pemberton views the breadth of the release as a significant benefit of the settlement, as it effectively resolves all employment-related exposure arising from the TimeTrack Pro auto-deduction practice during the class period.
No Admission of Liability. The Settlement Agreement expressly provides that AMA does not admit any liability, wrongdoing, or violation of law in connection with the settlement, and that the settlement is entered into solely for the purpose of resolving disputed claims and avoiding the expense, uncertainty, and burden of continued litigation.
IV. Consent to Settlement
Having reviewed the Settlement Agreement, the litigation record, and the relevant coverage considerations, Pemberton hereby consents to the proposed class settlement on the terms set forth in the Settlement Agreement as executed on September 15, 2023.
Pemberton has evaluated the reasonableness of the settlement amount in light of the totality of the circumstances and has concluded that the GSA of $14,750,000 falls within the range of reasonable outcomes for a matter of this nature and scope. In reaching this conclusion, Pemberton has considered the following factors:
First, the partial certification order entered by Judge Escobedo on August 11, 2023 significantly increased AMA's litigation exposure on the certified claims. The automatic meal period deduction claim—the centerpiece of the litigation—was found by the Court to present common questions susceptible to class-wide proof, and the Court's order included detailed findings regarding the uniform application of the TimeTrack Pro system across AMA's California workforce. Had the case proceeded to trial on the certified claims alone, AMA faced substantial risk of an adverse verdict on a class-wide basis.
Second, although certification was denied on several claims, the broad release obtained in the Settlement Agreement resolves those non-certified claims as well, providing AMA with finality and materially reducing the risk of future individual or representative litigation arising from the same conduct during the class period.
Third, the PAGA representative claim presented an independent and significant source of exposure, including the potential for substantial civil penalties that could have been assessed on a per-employee, per-pay-period basis.
Fourth, the settlement was negotiated at arm's length over the course of two full-day mediation sessions before an experienced and well-regarded neutral, the Honorable Patricia Okoro (Ret.), following extensive discovery. The record reflects that AMA produced approximately 147,832 documents during discovery and that eighteen (18) depositions were taken by the parties, including depositions of AMA's human resources leadership, IT personnel responsible for the TimeTrack Pro system, and multiple class representative and class member witnesses. Both sides retained and exchanged competing expert analyses on damages, including statistical analyses of the payroll data and expert opinions on the operation and configuration of the TimeTrack Pro auto-deduction feature.
Fifth, the settlement avoids the risk and expense of continued litigation, including the costs of a class action trial, post-trial motions, and potential appellate proceedings, all of which would have consumed significant additional defense costs chargeable against the SIR and potentially eroding the Policy limits.
Pemberton's consent to this settlement is provided pursuant to the settlement consent provisions set forth in Section VII.B of the Policy, which require the insurer's prior written consent before the insured may bind the insurer to any settlement or compromise of a covered claim.
V. Authorization of Policy Contribution
Pursuant to the foregoing, Pemberton hereby authorizes a contribution of Nine Million Two Hundred Fifty Thousand Dollars ($9,250,000) toward the Gross Settlement Amount of $14,750,000.
This contribution represents Pemberton's share of the settlement above the $5,000,000 self-insured retention. Pemberton notes that AMA has incurred approximately Three Million One Hundred Thousand Dollars ($3,100,000) in defense costs through September 2023 in connection with the Fuentes litigation. AMA's self-funded settlement share will be Five Million Five Hundred Thousand Dollars ($5,500,000), which is the difference between the GSA of $14,750,000 and Pemberton's authorized contribution of $9,250,000. Accordingly, AMA's total expenditure attributable to the Fuentes claim—comprising $3,100,000 in defense costs and $5,500,000 in settlement contribution—will be approximately $8,600,000, which is well in excess of the $5,000,000 SIR. Pemberton is satisfied that the SIR has been fully exhausted by AMA's defense costs and settlement expenditures, and that Pemberton's obligation to contribute toward the settlement has been triggered.
Following the payment of this $9,250,000 contribution, the remaining aggregate Policy limit available under Policy No. PMA-EPL-2022-00837 will be Five Million Seven Hundred Fifty Thousand Dollars ($5,750,000), calculated as follows: $15,000,000 aggregate limit minus $9,250,000 settlement contribution equals $5,750,000. This remaining limit will be available for any future covered claims arising during the July 1, 2022 through June 30, 2023 Policy period, subject to all terms, conditions, and exclusions of the Policy.
VI. PAGA Allocation
Pemberton acknowledges that the Settlement Agreement allocates Seven Hundred Fifty Thousand Dollars ($750,000) of the GSA to the resolution of the PAGA representative claims, representing approximately 5.1% of the total settlement amount.
As set forth in Pemberton's December 22, 2022 reservation of rights letter, Pemberton expressly reserved its right to deny coverage for PAGA penalties on the grounds that such penalties may constitute "fines or penalties imposed by law" within the meaning of the Policy's Penalty Exclusion, set forth at Section IV.F of the Policy. The Penalty Exclusion provides, in relevant part, that the Policy does not apply to any claim for, or any loss arising out of, the imposition of any fine, penalty, or sanction imposed by operation of law, statute, regulation, or order of any governmental body, agency, or official. Pemberton has maintained, and continues to maintain, that PAGA civil penalties are appropriately characterized as penalties imposed by statute within the scope of this exclusion.
However, in the interest of achieving a global resolution of all claims arising from the Fuentes litigation and in recognition of the fact that the PAGA allocation is modest in both absolute terms ($750,000) and as a percentage of the overall GSA (5.1%), Pemberton has determined that it will not insist on a carve-out of the PAGA component from its authorized contribution in this particular instance. Pemberton's authorized contribution of $9,250,000 is therefore inclusive of a pro rata share of the PAGA settlement component, and Pemberton will not seek to reduce its contribution on the basis of the PAGA allocation.
Pemberton emphasizes that this decision is specific to the facts and circumstances of the Fuentes v. AMA claim, including the relative size of the PAGA allocation, the structure of the settlement, and the importance of resolving all claims in a single transaction. This decision shall not be construed as a waiver of Pemberton's rights under the Penalty Exclusion (§ IV.F) of the Policy in connection with any future claims, any other matter involving AMA or any other insured, or any renewal or successor policy. Pemberton expressly reserves all of its rights under the Penalty Exclusion for all other purposes, and this letter shall not be cited as precedent or evidence of Pemberton's willingness to cover PAGA penalties or any other statutory penalties in any other context.
VII. Conditions of Contribution
Pemberton's authorized contribution of Nine Million Two Hundred Fifty Thousand Dollars ($9,250,000) is expressly conditioned upon the satisfaction of each of the following conditions:
1.  Final Approval Order. The Superior Court of the State of California, County of Los Angeles, shall enter a Final Approval Order and Judgment approving the settlement with prejudice and releasing all class and PAGA claims asserted against AMA in the Fuentes litigation. The Final Approval Order must be entered on terms that are substantively consistent with the Settlement Agreement as executed on September 15, 2023, and must constitute a final, appealable order disposing of all claims in the consolidated action.
2.  Binding Release. The Final Approval Order must include, or incorporate by reference, a release that is binding on all class members who do not timely and validly opt out of the settlement, encompassing all claims within the scope of the release provisions set forth in the Settlement Agreement, including without limitation the PAGA representative claims and all non-certified class claims. The release must be sufficient to preclude any future litigation by participating class members against AMA arising from the conduct at issue during the class period.
3.  No Material Modification. The material terms of the Settlement Agreement—including without limitation the Gross Settlement Amount, the class definition, the class period, the scope of the release, and the PAGA allocation—shall not be materially modified, amended, or supplemented without Pemberton's prior written consent. For the avoidance of doubt, adjustments to the allocation of attorneys' fees, service awards, or settlement administration costs that do not affect the GSA or the scope of the release shall not be deemed material modifications requiring Pemberton's consent.
4.  Opt-Out Threshold. In the event that the number of valid and timely opt-outs from the settlement class exceeds five percent (5%) of the estimated class size (approximately ninety-three (93) individuals based on the estimated class of 1,850 members), and AMA exercises its right to void the settlement pursuant to the "blow" provision or walk-away right set forth in the Settlement Agreement, Pemberton's authorization of the $9,250,000 contribution shall be deemed automatically withdrawn, pending renegotiation of the settlement terms. In such event, Pemberton reserves the right to reassess the reasonableness of any renegotiated settlement and to impose additional conditions on any revised contribution authorization.
5.  Funding Timeline. Pemberton will fund its $9,250,000 contribution within fourteen (14) calendar days following the entry of the Final Approval Order by the Court. Payment will be made by wire transfer to the qualified settlement fund escrow account designated by the claims administrator, Meridian Settlement Services LLC, located at 1600 E. Fourth Street, Suite 240, Santa Ana, California 92701, or to such other account as may be jointly directed in writing by AMA and its counsel of record. Pemberton will coordinate the wire transfer through its claims department and will provide written confirmation of the transfer to Calderwood & Harkness LLP and to Kestrel Risk Advisors Ltd. upon completion.
In the event any of the foregoing conditions are not satisfied, Pemberton reserves the right to withhold, modify, or withdraw its authorized contribution, and nothing in this letter shall be construed as obligating Pemberton to fund any contribution absent the full satisfaction of each condition set forth above.
VIII. Reservation of Rights — Willful Violations
Pemberton notes that its December 22, 2022 reservation of rights letter also expressly reserved Pemberton's rights regarding coverage for damages attributable to "willful" violations of the California Labor Code, pursuant to the Policy's Intentional Acts Exclusion set forth at Section IV.A of the Policy. The Intentional Acts Exclusion provides that the Policy does not apply to any claim arising out of, based upon, or attributable to any intentional, willful, or deliberate act or omission by any insured, including any knowing violation of law.
Pemberton has reviewed the Settlement Agreement and notes that it contains no admission of liability by AMA, no finding or adjudication of willful misconduct by AMA, and no allocation of any portion of the settlement amount to willful or intentional violations of the California Labor Code. On that basis, and in consideration of the fact that the settlement resolves disputed claims without any determination of willfulness, Pemberton does not assert the Intentional Acts Exclusion (§ IV.A) as a ground for declining to contribute to this settlement or for reducing its authorized contribution.
Pemberton expressly reserves the Intentional Acts Exclusion for all other purposes, including without limitation in connection with any future claims against AMA or any other insured under the Policy, and in connection with any claim in which a court or other tribunal makes a finding or determination of willful or intentional misconduct.
IX. Aldrich Executive Dispute — Coverage Denial Reaffirmed
Pemberton takes this opportunity to reaffirm its December 22, 2022 denial of coverage for the separate matter styled Aldrich v. Aurelius Media Americas Inc., Los Angeles Superior Court Case No. 22STCV41087 (the "Aldrich Matter"). This settlement contribution authorization pertains solely and exclusively to the Fuentes class action and the associated PAGA claims, and no portion of Pemberton's authorized $9,250,000 contribution shall be applied to or deemed to cover any aspect of the Aldrich Matter.
As stated in Pemberton's prior correspondence, coverage for the Aldrich Matter has been denied on the following independent grounds:
(i) Insured v. Insured Exclusion (§ IV.C). The Aldrich Matter involves claims brought by a former senior executive of AMA against the company and certain of its officers and directors. The claims fall squarely within the Policy's Insured v. Insured Exclusion, which precludes coverage for claims brought by or on behalf of any insured person against any other insured person or against the named insured entity.
(ii) Offensive Litigation / Affirmative Cross-Claims. AMA has asserted affirmative cross-claims and counterclaims against Mr. Aldrich in the Aldrich Matter, including claims for breach of fiduciary duty, breach of the duty of loyalty, and conversion of corporate property. These affirmative claims constitute offensive litigation initiated by AMA for the protection of its business interests and fall outside the scope of the Policy's defense coverage, which is limited to the defense of covered claims brought against the insured.
(iii) Nature of Claims. The restrictive covenant, non-solicitation, and trade secret claims at issue in the Aldrich Matter relate to AMA's proprietary business interests, competitive positioning, and the enforcement of contractual restrictions on a departing executive. These claims do not arise from covered "Employment Practices" as that term is defined in Section II.H of the Policy, which is limited to wrongful termination, discrimination, harassment, retaliation, and related employment-related wrongful acts.
Pemberton does not authorize any contribution toward the defense costs, settlement, judgment, or other resolution of the Aldrich Matter, and AMA's ongoing defense of and prosecution of claims in the Aldrich Matter remain entirely at AMA's own cost and expense.
X. Reporting and Cooperation
In connection with the ongoing administration of this claim and Pemberton's authorized contribution, Pemberton respectfully requests that Calderwood & Harkness LLP provide Pemberton with copies of the following documents as they become available in the ordinary course of the Fuentes settlement approval process:
•  The Preliminary Approval Order, if not already provided to Pemberton or its counsel;
•  The Class Notice, including both the long-form notice and the summary notice or postcard notice to be mailed or otherwise distributed to class members;
•  Any objections filed by class members, together with a summary of the grounds for objection;
•  Opt-out data, including the total number of valid and timely opt-outs and any analysis of the opt-out rate relative to the 5% threshold described in Section VII above;
•  The Motion for Final Approval and all supporting papers, including any supplemental declaration from the claims administrator regarding the claims rate and distribution methodology;
•  The Final Approval Order and Judgment, promptly upon entry by the Court.
Pemberton further requests that all monthly defense cost invoices submitted by Calderwood & Harkness LLP and any other defense counsel retained in connection with the Fuentes matter continue to be submitted through AMA's insurance broker, Kestrel Risk Advisors Ltd. (Attention: Samuel Okonkwo, Managing Director, One Broadgate, London EC2M 2QS, United Kingdom), in accordance with the established billing protocols. Pemberton's claims department will continue to review and process invoices in the ordinary course through the conclusion of the settlement administration process.
XI. No Waiver
Nothing in this letter shall be construed as a waiver, estoppel, or relinquishment of any of Pemberton's rights, defenses, or remedies under the Policy or at law or in equity, including but not limited to Pemberton's rights under the Penalty Exclusion (§ IV.F), the Intentional Acts Exclusion (§ IV.A), the Insured v. Insured Exclusion (§ IV.C), and all other terms, conditions, limitations, and exclusions of the Policy. Pemberton's consent to this settlement and its authorization of the $9,250,000 contribution described herein are specific to the facts and circumstances of the Fuentes v. Aurelius Media Americas Inc. class action (LASC Case No. 22STCV38214) and the associated PAGA representative claims, and shall not establish any precedent, course of dealing, or custom or practice regarding Pemberton's coverage positions, consent obligations, or contribution levels in any other matter, whether involving AMA or any other insured under the Policy or any other policy issued by Pemberton.
Pemberton expressly reserves the right to assert any and all coverage defenses, exclusions, limitations, and conditions in connection with any future claims, and the positions set forth in this letter shall be interpreted strictly in accordance with their terms and shall not be extended by implication or analogy to any other matter.
XII. Closing
Pemberton appreciates the professional and diligent handling of this matter by Calderwood & Harkness LLP and by AMA's in-house legal team. The complexity of this litigation and the skill with which the defense and settlement negotiations were conducted have contributed to a resolution that Pemberton believes serves the interests of all parties. Pemberton looks forward to the successful completion of the settlement approval process and stands ready to fund its contribution promptly upon satisfaction of the conditions set forth herein.
Should you have any questions regarding this authorization, the conditions set forth above, or any other coverage matter relating to this claim, please do not hesitate to contact the undersigned directly at the number and email address listed below.
Very truly yours,
THORNHILL & READE LLP
By: ________
Margaret L. Ashworth Partner Coverage Counsel for Pemberton Mutual Assurance Co.
Direct Dial: (860) 714-3318
Email: mashworth@thornhillreade.com
cc: (via email)
Gregory Tanaka, Vice President, Legal & Compliance Aurelius Media Americas Inc. 8500 Sunset Boulevard, Suite 1400 West Hollywood, California 90069
Samuel Okonkwo, Managing Director Kestrel Risk Advisors Ltd. One Broadgate London EC2M 2QS, United Kingdom
Renata Vasquez, Partner Calderwood & Harkness LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017
Pemberton Mutual Assurance Co. Claims Department 3400 Asylum Avenue Hartford, Connecticut 06105
Attn: Senior Claims Examiner — EPL Division
This letter and its contents are privileged and confidential, intended solely for the use of the addressees and the individuals and entities copied herein. Any unauthorized review, use, disclosure, or distribution is prohibited. If you have received this communication in error, please notify the sender immediately and destroy all copies.

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