Employer Loses Challenge Against Applied Underwriters

A California Court of Appeal says a lower court acted appropriately in granting summary judgment to Applied Underwriters, Inc. in a case challenging its deductions from a former client’s accounts. The court also found that the employer, Chango Coffee, failed to prove that Applied did not procure workers’ comp coverage for it during their seven-year contractual relationship.

Chango operated a small coffee shop and obtained payroll services and workers’ comp coverage from Applied Underwriters from 2004 through the end of 2011 when the owners sold the business. Chango notified Applied of the sale on January 1st, 2012, and told Applied to close its account on that date.

Applied confirmed that coverage was canceled on that date but later made three separate deductions from Chango’s bank account to finalize the last two pay periods covered by the contract and collect the policy’s minimum premium balance. Chango’s policy had a $5,000 minimum premium, and when it canceled mid-year, it had paid less than half this amount. Chango sued, alleging the deductions were not authorized and amounted to breach of contract, conversion, and fraud.

Summary Judgment

Applied Underwriters moved for summary judgment in the case on the basis that Chango had given written authorization to access its bank accounts to debit payroll and fees. It maintained that the three charges in January and February were to settle up for the pay periods ending December 25th, 2011, and January 1st, 2012.

Applied had previously attempted to process the December 25th payroll on December 29th, but Chango’s bank declined the $4,054 transaction. It went through the second time on January 4th. The second $2,010 transaction was processed on January 6th and covered payroll and fees through January 1st, 2012.

The final debit of $3,794 on February 7th was for the unpaid minimum premium and other fees. “As of January 1st, 2012, Chango had paid workers’ compensation premiums of $1,874, and thus its balance due was $3,126 ($5,000 – $1,874 = $3,126), plus a ‘short-rate premium’ of $45 and a statutory assessment of $223,” the appeals court noted.

The trial court found that Applied had presented evidence that the parties’ contract authorized the deductions and that Chango had not presented sufficient evidence to the contrary to raise a triable issue.


Chango also raised a new breach of contract claim that Applied had failed to obtain workers’ comp coverage, but the court rejected this, maintaining that it was not part of Chango’s pleadings.

Chango’s allegation that Applied failed to procure workers’ compensation coverage stemmed from the lack of any insurance policies in the documents it secured from Applied through discovery. However, the Court of Appeal notes that Chango’s discovery request failed to request copies of the policies and that copies of the policies were later filed with a declaration by Applied’s general counsel Jeffrey Silver in support of its summary judgment motion.

“In short, there is absolutely no evidence, and Chango pointed to none, that AUI failed to procure workers’ compensation insurance for Chango at any time between 2005 and 2011,” the appeals court held. It also rejected Chango’s assertion that the trial court abused its discretion by denying its verbal request to amend its complaint to add the specific allegation of failing to obtain coverage. The appeals court notes that this was only made after the trial court indicated it would grant the motion for summary judgment.

“[E]ven had the trial court abused its discretion by denying leave to amend, any such error was harmless,” the appeals court noted. “Chango failed in opposition to the motion for summary judgment to identify any evidence to support its claim that AUI failed to procure workers’ compensation insurance. Thus, even if Chango had been permitted to amend the complaint, summary judgment still would have been proper.”

Copies of the Second District Court of Appeal’s decision in Chango Coffee v. Applied Underwriters Inc. are available in our Resources section or by clicking here.

Applied Underwriters was once but is no longer an affiliate of Berkshire Hathaway. Applied’s management bought it. Berkshire Hathaway bears no responsibility for any of the events which have transpired involving Applied Underwriters’ or its subsidiaries including California Insurance Company.