Employer plaintiffs in two putative class action lawsuits against Applied Underwriters will have access to documents about the firm’s EquityComp and SolutionOne programs, as well as to documents related to its regulatory filings in California. The Berkshire Hathaway (NYSE: BRK.A) subsidiary had been seeking protective orders to limit discovery in the two-year-old legal battles, but its attempts to block access were rejected nearly in total.
The federal cases were filed by Shasta Linen Supply and Pet Food Express Ltd. and are seeking restitution from Applied for its use of unfiled and illegal collateral agreements as part of its EquityComp and SolutionOne programs.
The plaintiffs allege Applied engaged in unfair and fraudulent business practices. The employers maintain that the reinsurance participation agreement (RPA) that they were required to sign and abide by under the programs allowed Applied to collect excessive fees and expenses illegally.
Shasta Linen was the plaintiff in the precedential case before Insurance Commissioner Dave Jones who says Applied was using bait and switch marketing tactics. The commissioner ruled that Applied’s RPA was void and unenforceable as a matter of law because it was not filed before Applied started using it in California. A new version of the RPA has since been filed and approved for use in California, but many employers who were covered by the unapproved version are still embroiled in these legal battles over what is owed and to whom.
Applied Ordered To Produce Documents
In all but one of the discovery disputes before the court, Judge Allison Claire rejected Applied’s arguments for keeping documents out of the proceedings. Key among the documents that plaintiffs will now have access to are the documents and communications Applied had with the CDI regarding its submission of the RPA for approval in 2016, as well as financial information about the segregated cell accounts that Applied created for participants and its overall revenues from the EquityComp program.
Applied argued that information about its submission of the RPA for approval in 2016 and the Department’s response have no relevance to the cases at hand. However, Judge Claire sided with the plaintiffs finding that the filings could be relevant to the claims and defenses that will be made in the case. The 2016 filing was rejected by the Department.
Judge Claire also found that Applied is not entitled to a protective order for documents that reflect its total revenues under the EquityComp program. The court found the discovery request relevant to the central theme of the lawsuits –– that Applied “engaged in unfair and fraudulent business practices to ‘make hundreds of millions of dollars.’” The court is also allowing discovery into the segregated cell accounts that are set up for employers under the programs.
The plaintiffs will also get access to contact information for other potential class members. Applied argued that it had privacy concerns about producing this information about third parties for the plaintiffs, but the argument fell flat.
The court did grant Applied’s request for a protective order blocking discovery of various communications between it and other non-California regulatory agencies. The court held that insurance law and regulation varies so much from state to state that the relevance of these communications to a California action would be slight at most. “Allowing discovery on a subject of such speculative and tenuous relevance would be disproportionate to the needs of the case and would place an undue burden on defendants,” Judge Claire wrote calling the request “a fishing expedition” for statements that Applied may have made to regulators in other states on issues related to the disputes. “[P]laintiffs acknowledged at hearing that they have no specific factual basis for believing this to be so. Accordingly, to the extent the hypothetical information might have any relevance, discovery is merely a fishing expedition,” she noted.
Discovery is expected to continue through much of the year.