Flash Report: ALJ Rejects Lara’s Order In Applied Underwriters’ Decision

By: Dale Debber and Brad Cain

There is new a conflict between embattled California Insurance Commissioner Ricardo Lara and the Administrative law judges he has been overturning.  Now, an administrative law judge (ALJ) who decided a case challenging Applied Underwriters’ EquityComp program is refusing to change a decision despite being ordered to by Commissioner Lara.

Lara issued another order of “non adoption” of a proposed decision and, this time, ordered ALJ Clarke de Maigret to reconsider it.  The Commissioner’s order came after receipt of money from people related to Applied Underwriters’. But that’s only the beginning of the story.

Money and Meetings

The moves by Commissioner Lara and the California Department of Insurance follow the receipt of $53,000 in campaign funds for Lara’s 2022 reelection campaign from individuals linked to Applied Underwriters.

The moves also follow at least one meeting between Lara and Applied Underwriters’ CEO Steve Menzies. The amended decision in Oceanside orders the insured to pay the full face amount of the CIC guaranteed cost policy, which amounts to over a $200,000 bill for the employer.

The Case The Decision and The Overturn

The proposed decision ordered Applied Underwriters’ affiliate California Insurance Company, (CIC), to refund any payments “in excess of the total amount that may be validly charged under Appellants’ guaranteed cost policies,” but did not call on the insureds to pay any additional funds to Applied Underwriters’ or its insurance affiliate California Insurance Company, (CIC).  Applied caused CIC to issue the guaranteed cost policies after insureds signed the now void and unenforceable reinsurance participation agreement. But the insureds were never given the opportunity to agree to its terms.

Lara’s deputy commissioner and special counsel Bryant Henley, as he usually does, signed the non-adoption order. It directed ALJ de Maigret to address several additional issues, including the potential remedy in the case.

ALJ de Maigret’s proposed decision for Van De Pol Enterprises and Fuel Delivery Services contains the same remedy as in Oceanside. It was also one that Commissioner Lara initially accepted then later rejected after Applied filed a petition for reconsideration.

In the Van de Pol case de Maigret is being asked to address three issues:

  1. Does the precedential decision in the Shasta Linen case compel the conclusion that the Appellants are obligated to pay the full guaranteed cost policy premium?
  2. What remedies are at the Commissioner’s disposal if payment of the total premium under the GC policy is not required?
  3. Is there any other guidance on the question of available remedies that should be sought from a court of law?

ALJ de Maigret responded “None of the issues on which the June 2019 Order directs the ALJ to take additional evidence are questions of fact. Instead, whether Shasta Linen compels a particular conclusion given that the guaranteed cost policy rates are filed, what remedies the Commissioner may implement, and whether further judicial guidance may be applicable are all questions of law,” ALJ de Maigret wrote in response to the non-adoption order. “As such, there can be no relevant evidence on those issues. Instead, the Commissioner or his designee must refer to legal authority if they believe the Proposed Decision insufficiently addresses those issues.”

ALJ de Maigret says he will correct any drafting errors in his original proposed decision but is not changing the substance.

In other words, ALJ de Maigret refuses to give in to Lara’s demands and refuses to order Van de Pol to pay any additional premium to Applied.  The carrier could be ordered to give a refund if any payments were made in excess of the reasonable cost of the insurance. It is certainly not the outcome that Applied wants as evidenced by its petition for reconsideration in the Oceanside case.

Please see how this case fits into the timeline, 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.