Applied Underwriters Appeals Again To California Supreme Court

Applied Underwriters, a Berkshire Hathaway (NYSE: BRK.A) subsidiary, is again petitioning the California Supreme Court in one of its many pieces of litigation with former insured’s of its Applied Underwriters’ EquityComp program. Applied is appealing the adverse decision in its lawsuit with Luxor Cabs that struck down not only the enforceability of its unfiled and unapproved reinsurance participation agreement (RPA) but also dealt a blow to a key litigation strategy employed by Applied.

The case is the fifth time Applied Underwriters’ has asked the California Supreme Court to hear an appeal according to a search of the court’s case files. The Supreme Court however, has rejected all, each in turn. Observers expect a similar outcome this time around as well.

The First District Court of Appeal held in Luxor Cabs v. Applied Underwriters’ that the delegation clause and the arbitration provision in the EquityComp reinsurance participation agreement were unenforceable because the RPA was not filed for approval before use. Other courts have reached the same conclusion, as well as the California Department of Insurance itself in the precedential Shasta Linen case.

The lower court also did away with a key argument that Applied makes in most of these cases – that employers lack a private right of action to seek relief when Applied failed to file the pertinent plan documents with the state. Insurance Code section 11658 requires all forms and endorsements issued by a carrier to be filed with and approved by the California Department of Insurance before they can be used. The RPA is such a form, and it was not filed before use.

The decision was initially an unpublished opinion, but Luxor’s attorney Nick Roxborough successfully petitioned the court to publish the decision. The court’s findings can now be cited in other litigation. The ruling applies to all carriers attempting to enforce unfiled side agreements and documents, not just to Applied Underwriters and the EquityComp program.