In a stunning and unprecedented development, the New Mexico Insurance Department has issued a news release saying it does not recognize the California Court Order of Conservation for Applied Underwriters’’ California Insurance Company.
The whole balagan is quickly turning into a Mexican standoff between the California Department of Insurance, the New Mexico insurance superintendent, and Applied Underwriters who apparently acts as though it “don’t need no stinkin’ papers,” as the famous movie line goes.
Now there are more reasons for brokers to move CIC business.
A San Mateo Superior Court granted CDI a Conservation order, but now New Mexico says the order applies to an entity that no longer exists. The California Court’s November 4 order put California Insurance Company in the hands of the California Conservation and Liquidation Office.
“The assets and operations of CIC NM are not subject to a conservation order directed against a California entity that ceased to exist effective October 9, 2019,” the New Mexico Superintendent of Insurance says in response to the November 4 conservation order by San Mateo Superior Court Judge George Miram. “Nor are the assets and operations of a New Mexico domiciled insurer subject to a conservation order issued out of California.”
If New Mexico is correct – and no one but they seem to think they are – then by operation of law California Ins Company has no certificate of authority to sell, write, or bind insurance. There is a serious question as to whether or not current policies would be still in effect.
New Mexico maintains that the California domiciled California Insurance Company merged into California Insurance Company II, a New Mexico corporation, on October 9. The New Mexico Secretary of State then approved the merger on October 15, according to the New Mexico insurance regulator.
“It is the position of [the New Mexico Office of Superintendent] that an Order of Conservation against a non-existent company cannot and does not supersede OSI’s regulatory authority over the surviving New Mexico domiciled insurer, CIC NM.”
No Effective Merger
For its part, CDI maintains that the merger is not yet complete as neither California Insurance Company nor Applied Underwriters’ CEO Steve Menzies have filed a certificate of merger with the California Secretary of State as required. “[S]o the merger has not yet been effected pursuant to California law,” the department says in its application to conserve CIC. The Department says it was forced to take the conservation action without prior notice to Applied Underwriters to protect California insureds.
In an Ex Parte motion filed under seal and obtained exclusively by Workers’ Comp Executive, CDI says: “The Commissioner brings this Application ex parte and without notice because immediate and substantial harm could result from giving notice to CIC before conservation is affected. “Because a California corporation’s merger with a corporation in another state becomes effective upon the filing in California of a certificate of merger, CIC could attempt to evade California jurisdiction, and transfer assets to New Mexico simply by filing a certificate of merger in California.”
The Department told the court such a filing would automatically extinguish CIC’s California Certificate of Authority, therefore, the surviving entity would not be allowed to transact insurance in California “Therefore, if CIC is permitted to consummate the illegal merger, CIC policyholders in California will be left holding policies of a non-admitted insurer,” the Department notes.
Labor Code section 3700 requires employers to have workers’ comp coverage from an admitted carrier or be legally self-insured to meet state requirements. Employers operating without such coverage are subject to stop work orders, penalties and are not protected by the workers’ comp exclusivity provision.
Under the conservation order, CIC enjoined from “issuing any new or renewing any insurance policies except upon the written consent of the Conservator.” The New Mexico entity, whatever it may be, is also a nonadmitted insurer “thus, it is not entitled to transact insurance business in the state,” according to the Department.
A copy of the New Mexico news release can be found here in our resources section.
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.