The California Department of Insurance handed down a damning condemnation of Applied Underwriter's EquityComp program and the carrier's attempts to skirt departmental oversight. The Department says that the controlling program document – Reinsurance Participation Agreement or RPA - is a collateral agreement that must be filed and approved. It has never been filed nor approved and is, according to CDI, therefore void.
The highly anticipated decision is a victory for Shasta Linen Supply and for California employers in it fight with the Berkshire Hathaway (NYSE: BRK.A) subsidiary.
“Since the Department has stated clearly that the Reinsurance Participation Agreement or RPA needs to be filed and approved it is my opinion that brokers would be well advised not to sell the Applied Underwriters’ EquityComp program until the California Department of Insurance reviews and approves it, says Carmel-based lawyer Larry Lichtenegger. Lichtenegger has filed several actions against Applied Underwriters.
“Respondent knew California's filing requirements for policies and endorsements and chose not to seek the required regulatory approval,” says Kristin Rosi, acting chief administrative law judge for CDI. “Permitting [California Insurance Company] to enforce the [reinsurance participation agreement] would encourage illegal activity by other insurers and would be an abdication of the Commissioner's regulatory oversight.” Insurance Commissioner Dave Jones adopted Rosi’s decision in its entirety.
The decision declares the reinsurance participation agreement that Shasta Linen executed to be void. Shasta will only be responsible for the premium and costs associated with the three guaranteed cost policies issued to it by California Insurance Company. “To the extent that Shasta Linen has remitted to CIC funds in excess of the amounts under the guaranteed-cost policy, CIC shall refund that amount, including all amounts held in Shasta Linen's captive cell, within 30 days of the date of this decision.” Under Insurance Commissioner Dave Jones' order, the decision becomes effective in 30 days.
Lichtenegger says the Department was highly critical of the way Applied Underwriters’ EquityComp program does business in its criticism of the RPA’s cancelation clause, the runoff LDFs, and its misleading proposals. The decision provides excellent support for my existing cases.
“I do question the ruling of the ALJ,” Lichtenegger says, “ that the CIC policies are still enforceable when the facts are that the employers never negotiated the rates or terms of those policies nor had they seen them until after the EquityComp program had begun.”Workers’ Comp Executive will have a deeper article on the decision and its ramifications in the next few days.