Forced To Make Refunds…

Applied Underwriters’ EquityComp RPA Voided Thrice Over

The California Department of Insurance handed down another set of decisions – this time a trio of cases – holding that Applied Underwriters’ unfiled and unapproved reinsurance participation agreement (RPA) to be void and unenforceable. Essentially this means the Applied Underwriters’ EquityComp program already sold – whether in force or expired –  is kaput and the only premium available to Applied is from the underlying guaranteed cost workers’ comp policies.

In the three cases, the Department has ordered the Berkshire Hathaway subsidiary to, within 30 days, refund the employers any amounts they paid that were over what was required by the underlying guaranteed cost workers’ comp policies issued by California Insurance Company.

The concept also applies to any assessments taken from employer’s accounts, lawsuits Applied may have filed against employers for amounts in excess of the underlying policies and that no future charges can be taken by Applied.

The decisions are the first in a plethora of appeals filed by employers in the wake of the Department’s first precedential decision – that of  Shasta Linen.

Dozens of other cases are pending involving employers aggrieved by their time in Applied’s EquityComp program. The cases all involve the enforceability of the RPA. And all are expected to end with money due the employer.

“This proceeding, and the dozens like it, arises out of California Insurance Company (CIC), Applied Underwriters (AU) and Applied Underwriters Captive Risk Assurance Company Inc.’s (AUCRA) decision to circumvent California’s filing and approval requirements and directly sell an unfiled insurance plan to unwitting employers,” administrative law judge John Larsen wrote in his proposed decision in Platinum Securities case. The decision, adopted by outgoing Insurance Commissioner Dave Jones, found that:

  • Respondents’ RPA contained rates and supplementary rate information that must be filed pursuant to Insurance Code section 11735. Respondents violated section 11735 by failing to file the RPA’s rates and supplementary rate information.
  • Respondents misapplied their Insurance Code section 11735 filings by overriding their filed rates with the RPA’s unfiled rates and unfiled supplementary rate information.
  • Because the RPA applied unfiled rates and supplementary rate information, contravening Insurance Code section 11735, the RPA is illegal and void. The RPA cannot be reformed, and no compelling reason exists to enforce it. Accordingly, the RPA must be severed from the guaranteed cost policies.

The decision in favor of Platinum was handed down first with others in favor of O’Connell Landscape Maintenance and Hotcakes Inc. following within days. The decisions in the two latter cases reached the same conclusions and offered the same remedy as the Platinum Securities case.

Attorney Ryan S. Salsig in the Woodland Hills office of Roxborough, Pomerance, Nye & Adreani prevailed in the Platinum Securities case and is handling other Applied cases for the firm.