APPLIED: Decision Over Unfiled Agreement Due Soon

By: Brad Cain

A decision, which will affect a multitude of Applied Underwriters’ EquityComp customers, is expected before the end of the year. It may also affect a profusion of cases filed against Applied Underwriters in multiple venues around California and other states. At issue is whether Applied’s “Reinsurance Participation Agreement” (RPA) should have been filed and approved.

A decision in favor of that proposition potentially could invalidate the agreement rendering it void and unenforceable.

The case is in front of CDI administrative law judge in the case, Kristin Rosi. She has 60 days to render a proposed decision. Once a proposed decision is issued, Insurance Commissioner Dave Jones will have 60 days to act on her recommendations and issue a final decision.

The decision will be the culmination of a long-running dispute between a Sacramento-area employer and the former provider of its workers’ comp coverage. Both sides have submitted their final briefs in the case, Shasta Linen v. California Insurance Company.

Closing briefs and final reply briefs were just filed.

Concurrent Cases

Concurrently with this case there are other cases in disparate venues, in courts and in arbitration, in which the legality of the Applied RPA is at issue. A finding of illegality in any one of the cases will or may affect the rest.

Already, courts are holding that collateral agreements or side agreements, which modify what employers pay for coverage must be filed and are void and unenforceable if they have not been filed and approved. The industry saw such a decision recently in American Zurich v Country Villa Service Corp. The United States District Court for the Central District of California held Zurich’s “incurred Deductible Agreement” (IPA) to be void and unenforceable because it should have been filed.

The IPA according to court findings governed the structure and operation of and the duties and obligations of each party…” Most people think Applied’s RPA does the same.

Shasta signed the agreement with the then Bermuda-based Applied Underwriters Captive Risk Assurance Company (AUCRA) to take part in Berkshire Hathaway’s EquityComp program. The accompanying workers’ comp policy, issued through California Insurance Company was not available without the signed RPA.

Shasta is asking the department to void the reinsurance participation agreement “as an unfiled side or collateral agreement.” It is seeking the return of all the funds that it paid into the allegedly illegal program less any claims that were paid (for past coverage of the proceedings see Berkshire Hathaway’s… and Applied…).

“While Respondent argues that AUCRA is not an ‘insurer’ and that the RPA does not affect the premium ‘charged’ by CIC, that is wrong,” writes Shasta’s counsel in its brief. “The RPA by which AUCRA participates is a part of the insurance plan and should be viewed as an endorsement or a side or collateral agreement in respect to the CIC policies because some of its terms are contrary to CIC’s filed terms with the Bureau and CDI. The appeal does concern the CIC filings; the rates the Respondent affiliates actually used were from the RPA [not the filed policy rates] to collect ‘insurance costs’ or ‘premium’ as the term is ordinarily understood and the RPA was never filed for approval in this state.”

Applied’s own witness clearly stated that the amounts charged under the EquityComp program have no relation to the rates in the CIC policy. [See story Applied]

The outcome of the case could have wide-ranging implications inside California. Evidence entered during the year-long proceeding, which included over a week of evidentiary hearings, indicates that up to 80% of CIC’s business was written through the EquityComp program. CIC was the state’s 7th largest individual company writing workers’ comp coverage last year with over $333 million in written premium.

Shasta argues that the three companies, share ownership, management and that they acted in unison and that the EquityComp program should be reviewed in its totality.

“It is clear these three insurance-related entities all utilize the same persons as their Boards of Directors, all are represented by Jeffrey Silver as their general counsel, and all are subsidiaries of Berkshire Hathaway,” attorney Craig Farmer notes in a brief. “Both the effort to produce the EquityComp program and the effort to avoid regulatory oversight of parts of the program by California are also a collaborative effort that needs to stop.”

Attorneys for California Insurance Company, who also represent Applied Underwriters in other actions, counter that the issues raised in the case are beyond the purview of the department’s Administrative Hearing Branch and that the complaint should be dismissed. “Insofar as Shasta asks the AHB to review CIC’s application of its filed rates to determine premiums charged under the workers’ compensation insurance policies (the ‘CIC Policies’), the AHB may do so. However, the enforceability of the RPA – an agreement between Shasta and non-party Applied Underwriters Captive Risk Assurance Company, Inc. (ACURA) – is a question that must be asserted in another forum,” CIC maintains.

But the issue of what the RPA is, whether it should be filed and approved is, according to our sources, within the Department’s jurisdiction. And should the Department find in favor of Shasta Linen all of the EquityComp deals in California potentially could be voided.

A decision should be out before the end of the year.


Applied Underwriters was once but is no longer an affiliate of Berkshire Hathaway. Applied’s management bought it. Berkshire Hathaway bears no responsibility for any of the events which have transpired involving Applied Underwriters’ or its subsidiaries including California Insurance Company.