Court Approves Public Release Of CIC Rehabilitation Plan

The forthcoming plan for rehabilitating California Insurance Company, an affiliate of Applied Underwriters’ will be a public document, and policyholders aggrieved by the actions of Applied Underwriters and its affiliates will have an opportunity to review and comment on its terms before the San Mateo Superior Court finalizes the plan.

Insurance Commissioner Ricardo Lara sought and received the conservation order from that same court last November, but since that time, nearly all of the action on the case has been outside the public’s eye.

Court filings reveal that the parties have been discussing potential resolutions, but the CLO says that the Applied’s team broke off negotiations in May. That’s when it launched this unilateral plan to proceed with a rehabilitation plan and then allow California Insurance Company and the affected public the opportunity to review and comment on in the form of briefs. CLO is pushing for a final hearing on the plan in early 2021.

Sources close to the case tell Workers’ Comp Executive that Applied’s strategy is now and has always been “appeal appeal appeal until there is no appeal left.” That they are sitting on and reaping “huge” investment income from its considerable resources is just more reason to “delay delay delay.”

The motion to create a schedule to allow public review and comment, staunchly opposed by counsel representing the Applied minions, carried the day. The San Mateo Superior Court judge overseeing the case says it is well within Insurance Commissioner Ricardo Lara’s authority to proceed.

“What’s clear to the court is that the Commissioner has broad authority…”  –– Judge George Miram

“What’s clear to the court is that the Commissioner has broad authority to take actions the Commissioner deems necessary for expediently aiding or accomplishing the purpose of conservation. This gives them just that – broad authority to take these actions,” Judge George Miram said of the motion. He rejected Applied’s assertions that the actions will prejudice its case – which the judge called overblown – and said there was no reason not to grant the Commissioner’s request.

Shand Stephens, an attorney with DLA Piper for California Insurance Company, argued that allowing the public to view and comment on the proposed rehabilitation plan could jeopardize CIC’s A rating with AM Best. He said this could not only hinder CIC’s ability to write workers’ comp business, but also the ability of the other Applied Underwriter[s’] companies that participate in a pooling agreement with CIC.

Attorney Michael Strumwasser, for the Conservation and Liquidation Office (CLO), noted that Stephens raised these “the sky is falling” type arguments in the past about AM Best and been proven wrong. He stressed that Stephens made a similar argument against the original conservation order, but that AM Best eventually reaffirmed the rating.

Additionally, he notes that at the time AM Best had CIC’s rating under watch, which is not the case now. “The whole argument now is that a procedural motion will cause them to lose their Best rating and will cause their pool to fall apart, and there is absolutely no evidentiary support for that,” argued Strumwasser. He also noted that Stephens never raised this issue in any of the filings leading up to the hearing and was raising it for the first time during the hearing.

The court’s decision sets in motion a schedule that should have a proposed rehabilitation plan filed with the court before the end of August. A final hearing is expected in January. The approval of the motion is the most significant action on the case in months.

Moving Forward

Attorney Larry Lichtenegger, who represents numerous employers in actions against Applied Underwriters and California Insurance Company, applauded the court’s decision. “This gets us on a path towards getting these cases resolved,” noting that these private actions have been stayed for months while the CLO’s case plays out.

Under the planned schedule, CLO will file the proposed rehabilitation plan with the court on or before August 31, 2020. The document would become public at that time. CIC’s pre-conservation management will then have until October 15 to file its position papers, while non-parties will have until November 16 to file their support or opposition to the plan. CLO projects having all written submissions and responses filed with the court by December 7, 2020, and a hearing on the overall plan on January 14, 2021.

It is expected that the rehabilitation plan will call for CIC to surrender its certificate and exit the state – a notion that Shand disputed at the hearing. The plan will also offer aggrieved employers three options for resolving their disputes with CIC and Applied, including the option of not settling and taking their claim to court. The exact terms should be known in a matter of weeks.

For extensive past coverage of the Applied Underwriters saga, click here.