The Administrative Law Judge (ALJ) hearing an employer’s challenge to the legality of the EquityComp program sold by Applied Underwriters and California Insurance Company is now preparing her decision. The ALJ closed the record in the workers’ comp proceeding effective September 16th, which started the clock ticking on what may be a short or lengthy process.
The case between Shasta Linen Supply and Applied centers on the legal question of whether or not the Reinsurance Participation Agreement (RPA), which is the program’s foundational document, is an unfiled ‘side or collateral agreement.’ Shasta is asking the department to void the RPA and is seeking the return of all of the funds it paid into the allegedly illegal program.
Applied, holds the RPA doesn’t need to be filed, all of the other litigants contend it does. If the RPA amends the amounts due under a California Insurance Company policy, litigants say, it does, in fact, need to be filed and approved. Since it hasn’t been either filed or approved it could be voided and unenforceable. Recent case law tends towards the litigants position.
The ALJ heard weeks of testimony earlier this year from the parties and outside experts.
The outcome of the case could have wide-ranging implications in California. Many California employers are participants in the EquityComp program. Evidence entered during the year-long proceeding indicates that up to 80% of California Insurance Company’s business was written through the program.
Concurrent with this proceeding other cases challenging the legality of the program are moving forward. An arbiter just finished hearing testimony in a case involving another California employer and has received the final briefs from the parties. It is possible that California employers will have a decision from the neutral arbiter before the Department renders its final decision. Other cases are pending in various legal venues against Applied.
Many brokers who placed insured with Applied Underwriters’ EquityComp program are also being sued [see article]
Specific Timing Rules Govern
It is widely hoped a decision from the California Department of Insurance will be forthcoming prior to the January renewal cycle so that brokers and others will have clear direction as to the legality of the EquityComp Program. Putting more employers into an illegal program under an unenforceable contract if that’s what it is going to be is not good consumer protection.
Under Title 10, the ALJ that heard Shasta’s case has up to 60 days to deliver a proposed decision to the Insurance Commissioner. Insurance Commissioner Dave Jones will then have 60 days to consider his options.
“The Commissioner may adopt the proposed decision in its entirety, or he may make technical or other minor changes in the proposed decision and then adopt it as the decision. Action by the Commissioner under this subsection is limited to a clarifying change or a change of a similar nature that does not affect the factual or legal basis of [for] the proposed decision.”
The Commissioner has options and can instead move to issue his own decision. The regulations allow that “the Commissioner may decide the case upon the record, including the transcript, or an agreed statement of the parties, with or without taking additional evidence, or may refer the case to the same hearing officer if reasonably available, otherwise to another hearing officer, to take additional evidence.”
If the case gets kicked back to the ALJ, then the process starts over again with the ALJ taking additional evidence and the 60-day clock resetting. In these cases, the Commissioner will have to afford the parties the opportunity to present their arguments directly to the Commissioner either in person or in writing.
The regulations also give the Commissioner the option of extending his 60 day review period by up to 30 days “If the Commissioner finds that a further delay is required by special circumstances.” The commissioner would have to explain these special circumstances.