Applied Underwriters’ Equity Comp Program Problems Continue...

Fights Over Applied Underwriters “Excessive” Charges Are Multiplying

By: Brad Cain

In the settlement agreement between Applied Underwriters’ and the California Department of Insurance Applied Underwriters specifically agreed to and affirmed the precedential nature of the Shasta Linen decision. As a precedential decision, it applies to all substantially similar cases. But now, according to case files, Applied Underwriters’ is attempting to hold other employers who were in EquityComp program to its version of the terms of the disallowed – deemed void and unenforceable by CDI – reinsurance participation agreement or RPA.

Applied Underwriters’ is a Berkshire Hathaway subsidiary (NYSE: BRK.A). Workers’ Comp Executive has learned that a seventh appeal was just filed with the CDI administrative hearing bureau. Many more cases are being heard in courts around the country.

The latest case to be filed with CDI was filed by Hotcakes, Inc. which does business as IHOP.

Through its appeal, Hotcakes is challenging a $1.5 million increase in its projected total plan cost during the last two months it was in the EquityComp program. “The excessive billings to Hotcakes were the result of the application of unlawful ‘run-off Loss Development Factors’ contained in the RPA which superseded the rates applicable to the CIC policies,” the company says in its appeal. As with other insureds, the sudden increase in Applied’s demand for payment forced Hotcakes to sign a promissory note with Applied to avoid a coverage lapse.

Hotcakes says it had already paid $2,548,586.04 to CIC and Applied under the program when the total estimated premiums for the three one-year CIC policies was less at $2,532,007. “Yet CIC and its affiliates seek an additional $1,514,521.44 from Hotcakes in a collection action currently pending in Nebraska,” the company points out in the appeal.

The company is asking CDI for an order declaring the RPA that it had to sign to join the program to be void – an order CDI issued for substantially the same agreement in Shasta. IHOP maintains that at the most it should only be responsible for the premiums of the underlying CIC guaranteed cost policies that were issued to the company – an amount that has already been paid in full.

The case before the CDI shows that Hotcakes asked CIC and Applied to adhere to and implement the remedy in the Shasta Linen decision to its case, but was rebuffed.

“[C]ounsel for Applied Underwriters, Inc., rejected that request, contending that: (1) Hotcakes could not appeal under Ins. Code 11737(f) because only the Commissioner of Insurance can appeal an unfiled rate; (2) the Commissioner acted in excess of his powers in the Shasta Action; (3) the Commissioner issued ‘incorrect determinations’; and (4) that, even if Hotcakes brought an administrative appeal under the precedential Shasta Order, CIC and its affiliates would appeal the Commissioner’s decision in court,” the company notes in its filing.

Carmel based Attorney Larry Lichtenegger, who is handling some of the EquityComp appeals currently at the Department, says attorneys for Applied have been clear that the company intends to challenge any adverse decision from the administrative hearing process in court.

He adds that Applied appears to be intentionally dragging out the CDI appeals process to prevent an adverse ruling by the department from being used in the many ongoing trials that they are fighting. Lichtenegger has completed five such cases with Applied and has some 35 more pending arbitrations and court trials in which he could use such findings, but suspects none will ever become legally “final” such that they are useful evidence because of the tactics of Applied.

Hotcakes says Applied adopted this stance in a July 28, 2017, decision denying its request to apply the Shasta Linen remedy to its case.

That decision was issued nearly two months after Applied capitulated and agreed to drop its challenge of the Shasta Linen decision. As part of the stipulated agreement with the Department, Applied Underwriters’ specifically agreed that the precedential nature of the Commissioner’s order regarding EquityComp’s RPA in the Shasta case “applied to administrative proceedings before the CDI in cases involving facts and circumstances substantially similar to those in the Shasta Action.”

Hotcakes contends that its case is substantially similar to Shasta Linen’s but will have to expend additional legal capital and go to hearing to prove this fact. Meanwhile, it is also continuing to battle in Nebraska the collection action that Applied is pursuing under the terms of the debunked program that the Department said was sold using “bait and switch” marketing tactics.

The question we all have to ask is what actions – outside of the hearings – will the California Department of Insurance take to protect California businesses from so much out of state and in state litigation on what appears to be settled issues? Will the Department feel it is necessary to issue another cease and desist order?