California Insurance Company asked the California Supreme Court to intervene and review two lower court rulings approving California’s rehabilitation plan for the conserved workers’ comp insurer. The state’s highest court has now denied the request without comment.
The denial leaves in place the state-developed rehabilitation plan that will ultimately usher the carrier out of California. The San Mateo Superior Court originally approved the plan in April 2024.
The San Mateo court has overseen the conservation since it was initiated in November 2019. The First District Court of Appeal later rejected Applied Underwriters’ arguments for overturning the plan, and now the California Supreme Court has closed the door on the carrier.
It’s unclear if CIC and Applied Underwriters will seek federal review of the decision. Then again, Applied is famous for its scorched-earth litigation practices. An attorney who has closely followed the years-long deliberations says the California Supreme Court’s decision should finally allow the rehabilitation plan to move forward. “They have been so overwhelmingly defeated so far that I can’t imagine they’ll continue,” the attorney noted.
The California Supreme Court’s decision again reaffirms the Insurance Commissioner’s authority to place insurance companies into conservation for reasons beyond the risk that the company may go under. Here, the conservation order was issued to block Applied Underwriters’ attempted end run around California’s regulatory authority.
Settlement Details
The state’s rehabilitation plan sets the terms for resolving pending litigation between employers and the carrier regarding the EquityComp program and its allegedly illegal reinsurance participation agreement (RPA). An independent consultant selected by the state will oversee the process for resolving the litigation and develop the settlement offers based on each employer’s claims data.
The settlement options are:
- Pay the premiums under the existing guaranteed cost policy issued by CIC or get a refund if there was an overpayment.
- Pay a premium under what is determined to be a standard Retrospective Rating Plan based on California’s ‘CalRetro Plan’ or receive a refund for overpayment.
- Enforce what Applied proposed under its solicitation document, the “Program Summary and Scenarios,” or receive a refund for overpayment.
- Court watchers estimate CIC’s legal fees may exceed the cost of the lawsuit settlements.
The state’s plan also calls for an auction of CICs’ in-force policies in California and the reinsurance of the liabilities from expired policies. If there is no interest from unaffiliated entities, then the deal requires an independent third-party administrator to handle the claims.
When the rehabilitation plan is complete, CIC must surrender its California certificate of authority. That final move clears the way for the carrier to merge with its New Mexico-domiciled alter ego and exit the state.
Attorney Maxwell Vaughn Pritt handled the petition for California Insurance Company. Attorney Michael Jay Strumwasser represented Insurance Commissioner Ricardo Lara.