CDI Transparency Questioned

Lobbyists Sue Applied Underwriters For $2M Fee

Correction: The original version of this article misidentified the organization that is pursuing a public records act lawsuit against the California Department of Insurance. The organization is Consumer Watchdog and the article has been corrected. Our apologies for the error.

The lobbyists which Applied Underwriters hired to help it buy the company back from Berkshire Hathaway and avoid California regulatory issues charge that the carrier and its financial backer are now refusing to pay its bills.

The lawsuit filed by former Assemblyman Rusty Areias and former Assembly Speaker Fabian Nunez’s firm Mercury Public Affairs is against Applied Underwriters, it’s founder Steven Menzies, and Alan Quasha, who helped finance the buyback.

The legal dispute sheds more light on the intense influence campaign Applied Underwriters waged to get the buyback done.  It also renews scrutiny of Insurance Commissioner Ricardo Lara’s actions in the process. Commissioner Lara recused himself from any decisions about the deal after it came to light that he had accepted campaign contributions from industry officials connected to Applied Underwriters. Lara was forced to shut down fundraising for a time, and the contributions were returned.

In addition to the lawsuit filed by the lobbyists, the watchdog group that helped expose those contributions is attempting to bring more sunshine to the public. It says the California Department failed to disclose information about the lobbying effort waged by Nunez and Areias or to even search for any relevant documents related to the lobbying effort. Consumer Watchdog is pressing a public records act lawsuit and says the Department never produced any records of any contact between Nunez and Lara or CDI staff.

Consumer Watchdog says it also learned that the Department is withholding over 100 communications between the Department and Applied Underwriters owner Steve Menzies and chief counsel Jeffrey Silver. The dispute over the Department’s response to the PRA is set for hearing in November.

Fee Dispute

The lawsuit by Areias and Nunez’s firm alleges the lobbyists were initially promised $1 million to either win California Department of Insurance approval of the deal or otherwise not oppose the redomestication of California Insurance Company into another state. But with the deal in trouble and a $60 million security deposit on the line, the lobbyists say that Quasha promised to double the fee if they could get the deal done.

The lobbyists say they submitted an invoice in October 2019 to collect their fee just days after the New Mexico regulator approved a merger of California Insurance Company into California Insurance Company II, a newly created New Mexico corporation. The action was taken without the approval of the CDI, nevertheless, they say it allowed Menzies and Quasha to complete the $920 million deal with Berkshire Hathaway. The lawsuit alleges that Quasha rejected the invoice and told the lobbyists not to be greedy and resubmit it for the original $1 million fee.

Subsequent to the fee dispute, the California Department of Insurance sought and received a San Mateo Superior Court order putting California Insurance Company under conservatorship. CDI is currently developing a rehabilitation plan for the carrier but is battling Applied Underwriters on multiple legal fronts (see related story on page 1).

The lobbyist’s lawsuit alleges breach of contract, promissory fraud, and unjust enrichment. No trial date is set, but the parties are due back for a case management conference next month.

For past coverage of Workers’ Comp Executive’s investigation of Applied Underwriters, click here, and for past coverage of the scandal surrounding Commissioner Lara’s fundraising and handling of the Applied Underwriters situation, click here.