Applied Underwriters Facing Another Employer Lawsuit

By: Brad Cain

Another California employer is trying to undo the financial losses it says it sustained by signing up with Applied Underwriters EquityComp program. The lawsuit filed last week alleges unfair claims handling practices, the imposition of unconscionable terms, unfair business practices, as well as negligence on the part of Applied and the company’s broker.

In addition to a demand for damages, the employer is asking for rescission of the policy for allegedly including unfiled rate plans in the program’s reinsurance participation agreement (RPA).

The lawsuit was filed by San Francisco’s Luxor Cab company. The Berkshire Hathaway affiliated company issued notice that it was non-renewing the policy. Applied also sent a bill for $320,910.10 that was due in five days to cover the full amount of Luxor’s outstanding claims. The claims were developed using “exaggeratedly high Loss Development Factors, plus interest,” the lawsuit claims, noting that the non-renewal notice also required Luxor to continue making monthly payments for other alleged program charges.

Carmel-based Attorney Larry Lichtenegger, who is handling many other cases against the embattled Applied Underwriters’, says the behaviors alleged in this matter are consistent with those alleged in other cases filed previously in the courts, and with the California Department of Insurance.

Upon the advice of its broker, Luxor agreed to pay the amount demanded by Applied and entered into a promissory note with the company to pay it off over 12 months with an 8.735% interest rate. It was the second time Luxor had to take out a promissory note with Applied to pay a sudden six-figure demand. Earlier the lawsuit alleges that Applied demanded that Luxor sign a promissory note for over $450,000 to cover the estimated cost of a death claim that has a statutory cap of $250,000.

“To show how extreme and outrageous the demand by Berkshire was, the claim for which Berkshire demanded over $450,000 from Luxor, ultimately settled for only $48,000,” writes attorney Nick Roxborough in the complaint, noting that Luxor faced cancelation if it didn’t pay the amount demanded. “Based upon the egregious calculations and the application of an LDF, the Berkshire Defendants put Luxor in a position where it could not possibly pay the amount demanded in the given month.”

Roxborough says in the lawsuit that it has become standard business practice for the defendants to use the promissory notes when making demands for hundreds of thousands of dollars from insured’s in any given month. Roxborough maintains that in Luxor’s case, every time Berkshire presented the promissory note it was “as a take it or leave it agreement.”

The plaintiffs are seeking a jury trial as well as a declaration that the RPA’s arbitration provisions are unenforceable.