Broker Pulled into Applied Underwriters’ EquityComp Lawsuits

The broker for two employers pursuing class action lawsuits against Applied Underwriters and its EquityComp program has been ordered to respond to the discovery demands of the Berkshire Hathaway (NYSE: BRK.A) subsidiary. A federal district court says that not only must Relation Insurance Services, formerly Ascension Insurance, respond to the Applied Underwriters’ discovery demands, but it must produce the requested documents on its own dime.

The cases allege fraud, unfair competition, and unlawful business practices. The cases followed Shasta Linen Supply’s successful plea to the California Department of Insurance to have the Applied Underwriters’ EquityComp program, and its associated reinsurance participation agreement (RPA) declared void and unenforceable. The third-party subpoenas are part of the purported class action lawsuits filed by Shasta Linen and Pet Food Express Ltd.

First party individual lawsuits have been won by many employers.

The court notes that Relation could have reasonably expected litigation expenses to arise from transactions [employers] in the Applied Underwriters EquityComp program.

Relation, operating at the time as Ascension Insurance, was the broker that placed the two companies in the EquityComp program and in the case of Pet Food Express renewed the program for a second three-year term and then an additional one-year term. Applied is seeking documents from Relation responsive to 18 separate discovery requests related to the work that Relation did for Shasta and Pet Food Express.

Applied maintains that it needs the documents because the complaints “are based on the allegation that [Shasta and Pet Food Express] relied on Applied Underwriters fraudulent statements in making their decision to purchase insurance,” the District Court for the Eastern District of California notes in its order.

“Applied Underwriters’ argues that Relation’s brokerage documents are relevant to the case because, insofar as plaintiffs allege they were misled, plaintiffs’ general knowledge of the market and competitive products is relevant to Applied Underwriter’s defense.”

Production Costs

Relation objected to the subpoenas over cost and privacy concerns, but its arguments failed to persuade the court. The court rejected claims that producing the documents would reveal confidential and proprietary information finding that the existing protective order in the case would prevent this from occurring.

Additionally, it rejected the argument that the subpoena was premature. The court pointed out that there were gaps in the documents produced by Shasta Linen and Pet Food Express during discovery. Applied is looking to Relation to fill in these gaps.

“Applied Underwriters’ argues that Relation’s brokerage documents are relevant … insofar as plaintiffs allege they were misled, [Relation’s] general knowledge of the market and competitive products is relevant to Applied Underwriter’s defense.”

“Applied Underwriters also argued that metadata associated with Relation’s copy of documents may be important to its arguments; the court finds this reasoning persuasive. Because Applied Underwriters has attempted to get responsive documents from plaintiffs and retains a belief that Relation has additional responsive documents in its possession, and because Relation’s copy of documents may include discoverable metadata unique to their version of the document, Applied Underwrites has demonstrated a need to obtain the documents from Relation and the third-party subpoenas are not premature,” the court wrote.

Under the court’s order, Relation also has to foot the bill for the cost of producing the relevant documents. It claims that this will cost around $15,000. The court held that this amount was not significant enough to order Applied to share in the cost of production. Relation reportedly made over $400,000 in commission on the two accounts.

Additionally, the court notes that Relation could have reasonably expected litigation expenses to arise from transactions that placed Shasta Linen and Pet Food Express in the Applied Underwriters EquityComp program. The broker is also involved in other cases where it was the broker for employers that are now in litigation with Applied Underwriters’ over the EquityComp program.