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Monday, March 30, 2020

Cease-and-desist order follows Calif. Workers' Comp ruling

By Carrie Salls | Jul 6, 2016

Insurance 05

SACRAMENTO, Calif. (Legal Newsline) – California employers may be forced to find alternate Workers’ Compensation insurance programs following a ruling from the California Department of Insurance.

That decision voided a program provided by Berkshire Hathaway subsidiaries California Insurance Co. (CIC) and Applied Underwriters Captive Risk Assurance Co. Inc.

Earlier this year, the California Department of Insurance ruled that an EquityComp's Workers’ Compensation program that was sold to Shasta Linen Supply by the Berkshire Hathaway units is null and void because it constituted an unfiled collateral agreement.

Farella Braun + Martel LLP partner Dennis Cusack said Applied Underwriters did not originally get approval to sell these programs in California, although it has now applied for approval. Cusack said it is uncertain whether the Insurance Commissioner Dave Jones will approve that application.

“The precedential Shasta Linen decision and order found that California Insurance Company was circumventing regulatory oversight by imposing unfiled rates and terms on a small family owned business, including terms requiring the small business to pay hundreds of thousands of dollars more and to resolve any disputes with the insurer in the British Virgin Islands,” Jones said.

Cusack told Legal Newsline that the ruling is going to apply to anyone who has an EquityComp program with Applied Underwriters. He added that Applied’s SolutionOne program is also a problem, but that program is not as common in California as in other states.

In addition, Jones recently issued a cease-and-desist order in the wake of the Shasta ruling. Cusack said the commission will hold a hearing within 30 days to stop the sale of the affected programs. 

As a result of the cease-and-desist order, Cusack said employers will likely need to purchase guaranteed-premium programs instead of the loss-sensitive premium programs subject to the order.

“This is an important ruling from the commissioner,” Cusack said. 

He added that the loss-sensitive premium programs “are a concern for smaller companies.”

Cusack said a lot of employers in California bought the Applied Underwriters loss-sensitive premium programs. 

“A lot of employers have benefited from that; a lot have been harmed by that,” he said.

Cusack said the change in coverage could cost more for some employers, but not necessarily for everyone. 

“It’s going to require employers at their next renewal to find a different underwriter,” he said.

In addition to the possible need to change programs, California employers may be entitled to a refund of premiums paid to CIC and Applied Underwriters as a result of the Shasta ruling.

CIC appealed the administrative law judge’s ruling voiding the program in the Shasta case, and Shasta appealed the denial of its claim for reimbursement of all sums in excess of actual claims paid. The Insurance Department upheld the administrative law judge’s decision on June 20.

Specifically, Jones agreed with the administrative law judge’s finding that Applied Underwriters’ reinsurance participation agreement was actually a collateral agreement, and that the agreement was never filed with the state commission, rendering it void and unenforceable.

The commissioner also ordered Shasta to pay the guaranteed cost premiums under the CIC policies, but said the company is entitled to a refund of all amounts paid in excess of those premiums. 

Jones said in a statement that, as a result of the June 20 ruling, he directed the Department of Insurance to determine whether other unfiled insurance policies and rates are being sold by other Berkshire Hathaway companies and other Workers’ Compensation insurers.

“The outcome of that evaluation will determine what action the commissioner takes next, ranging from market conduct examinations, financial examination and enforcement actions with potential penalties,” Jones said.

Following the cease-and-desist order, Jones said CIC and Applied must stop selling and renewing unfiled policies.

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Organizations in this Story

Applied UnderwritersFarella Braun + Martel LLP