Lara Faces Challenges to Authority

Insurance Commissioner Ricardo Lara is facing new challenges by Applied Underwriters over his actions in the workers’ comp appeals filed by Oceanside and RDR Builders. The Berkshire Hathaway (NYSE: BRK.A) subsidiary is asking the courts for a peremptory writ of mandate to compel the Commissioner to vacate his orders in the cases.

The actions are a continuation of its efforts to get the reinsurance participation agreement (RPA) in its EquityComp program validated by the courts. The California Department of Insurance in the precedential Shasta Linen decision and various other courts have held that the RPA is void and unenforceable.

In addition to the Oceanside and RDR Builders petitions, Applied earlier this year filed petitions for preemptive writ of mandate in cases involving five employers – Arevalo Tortilleria, Platinum Security, Star Concrete, O’Connell Landscape, and Hotcakes Express.

Applied is challenging not only the Commissioner’s proposed remedies in the cases but the underlying basis of former Insurance Commissioner Dave Jones’s precedential decision in the Shasta Linen case – that the RPA was void and unenforceable because it was never filed for approval. Applied initially filed a petition for a peremptory writ challenging the Commissioner’s decision after it lost the Shasta Linen case but walked away from that petition when it settled with the Department.

As part of the settlement agreement, Applied acknowledged explicitly that as a precedential decision the Shasta Linen case “applies to administrative proceedings before the CDI in cases involving facts and circumstances substantially similar to those in the Shasta Action” (for past coverage see EquityComp Settlement…).

Déjà Vu

In subsequent petitions for peremptory writs, however, Applied brings back its arguments that the Commissioner is exceeding his authority under Insurance Code section 11737. “In the order, the Commissioner declared the Real Party’s RPA void on the grounds that it constituted a misapplication of rates under Insurance Code section 11737,” Applied maintains. “No statute or regulation permits the Commissioner to declare a contract void on the grounds that it is unfiled under section 11737.”

Applied also argues that the Commissioner erred by concluding that it had to file the RPA as a workers’ compensation rate or supplementary rate information under Insurance Code section 11735. It also argues that the Commissioner erred in “concluding that the RPA’s payment obligations are void or may be rendered unenforceable on the grounds that they were not filed as a workers’ compensation rate or supplementary rate information.

The Department and its administrative law judges consider the RPA to be based on unfiled rates and supplementary rate information that modify and misapply the rates that actually were filed by California Insurance Company for the guaranteed cost policy that went with the EquityComp program.  went with the EquityComp program. “Because the RPA is based on unfiled rates and supplementary rate information in violation of Insurance Code section 11735, the agreement is unlawful and void. This determination is consistent with California case law concerning unfiled rates at the Commissioner’s determination in Shasta Linen,” ALJ Clarke de Maigret wrote in one decision.

Applied has attempted repeatedly to make these same arguments in the cases pending before the Department’s administrative hearing bureau but is consistently rebuffed by the ALJs. The judges maintain that this amounts to relitigating the issues decided in the Shasta Linen decision.

Applied is also setting up a jurisdictional fight with Oceanside and RDR Builders. The company filed its petitions for writ in the Superior Court for Los Angeles. Attorney Larry Lichtenegger filed his petitions for writs in San Francisco Superior Court. Lichtenegger is challenging the Commissioner’s proposed remedies not the underlying finding that the RPA is illegal and void (see Lara Sued…).

For past coverage of the numerous disputes between Applied Underwriters and California employers and regulators click 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.