The Ninth Circuit Court of Appeal is calling on Applied Underwriters’ New Mexico subsidiary and the California Department of Insurance to adhere to an accelerated briefing schedule in the company’s second attempt to have the Court intervene in the conservation of California Insurance Company.
But while calling for briefs to be filed this month and next, the Court refused the request by California Insurance Company New Mexico to schedule an expedited hearing in the matter.
CIC New Mexico filed the request claiming it is facing irreparable harm and needs a quick resolution. CDI says the carrier failed to show good cause to justify an expedited hearing. CIC New Mexico’s appeal and request for expedited review is the second to come before the Ninth Circuit. Applied Underwriters and Applied Risk Services already went down this path and lost the argument.
In an acknowledgment of the overlap in the appeal, the Ninth Circuit ordered that CIC New Mexico’s appeal be calendared at the same time as the appeal filed by Applied Underwriters. Both appeals are challenging earlier losses at the district court level that denied their requests to intervene in the ongoing conservation of California Insurance Company (for past coverage, see Federal Court Rejects…). The district court held that the San Mateo Superior Court handling the conservation has jurisdiction and declined to intervene. The Court chided Applied for the duplicative filings.
CIC New Mexico is the hastily created New Mexico carrier that was to be the recipient of the California-based California Insurance Company’s operations and assets. Applied created the New Mexico carrier in a matter of days after failing to obtain Insurance Commissioner Ricardo Lara’s approval of its filing to allow founder Steve Menzies $920 million buyback of the company from Berkshire Hathaway. CDI obtained a court order placing CIC into conservation by the skin of its teeth just before the planned redomestication occurred. The litigation ensued.
“Appellant presents the same grounds that its Motion to Expedite asserted – and were twice rejected by this Court in the [Applied Underwriters, Inc.] appeal. The present Motion is even weaker,” says the Department in its brief opposing CIC New Mexico’s Motion to expedite. It points out that the various Applied entities, including California Insurance Company and CIC New Mexico, are all controlled by the same individuals. “There is simply no urgency to this appeal, taken from a case filed over a year after initiation of the state conservation proceeding Appellant challenges here,” CDI maintains.
The Department argues that there is no need to expedite because the carrier never sought a preliminary injunction from the District Court, which undercuts its claim that it now needs an accelerated review process. “Having sat on their asserted rights, never having sought preliminary injunctive relief from the district court, and having then been told by the district court that it is not entitled to federal intervention on its behalf, Appellant cannot now insist that the Court make up its lost time,” the Department argues in the filing.
Additionally, it notes that Applied’s preferred expedited schedule would overlap with many of the scheduled actions in CIC’s ongoing conservation and rehabilitation proceedings. The proposed rehabilitation plan is currently scheduled for hearing in mid-October.
“CIC knowingly attempted to merge without approval, in effect betting that the regulator would not or could not prevent it,” the Department maintains. “When the conservation foiled its immediate plans, CIC and its affiliates commenced a war of delay and obstruction, in which the two federal lawsuits are weapons.”
The Department’s filing also aims at Applied’s assertions that the CIC conservation is the reason it is in regulatory hot water in New Mexico. The carrier is facing sanctions for failing to open an office or maintaining assets in the state. New Mexico regulators earlier this year issued an order to show cause why CIC New Mexico (CIC II) should not be sanctioned or lose its certificate of authority but took the issue off calendar in light of the ongoing issues in California.
In its filing, Applied asserts that the CIC conservation had blocked it from transferring any assets to the New Mexico affiliate. CDI says this is false.
“CIC affiliates have received $55 million in excess workers’ compensation deposit releases. And $45 million in excess statutory deposits has been released and is being held in a separate account by the Conservator,” CDI notes. “CIC’s management was notified of that fact and that it may request that the Conservator release the funds from the separate account. No request for release has been received to date.”
The Department also points out that Applied has many unencumbered options for meeting New Mexico’s demands – both for establishing an office and fulfilling the capital needs. Applied Underwriters has assets sufficient enough to open an office in New Mexico and deposit the statutorily required deposit.
“Nothing happening in the California conservation prevents CIC II from opening an office in [New Mexico], a requirement of every admitted insurer,” the Department points out. “If CIC II has not been funded to conduct any business other than CIC’s, that simply confirms that it was, as the district court found, merely a shell created to evade California jurisdiction and not an operating company intended to be anything more than the vehicle for CIC’s unapproved redomestication scheme.”