Flash Report: Applied: CDI Backtracks On Cease & Desist Order

Workers’ Comp Executive Exclusive

California Department of Insurance is retracting its claims that a cease and desist order is in effect against Applied Underwriters and its EquityComp workers’ comp program. However, CDI spokeswoman Nancy Kincaid tells Workers’ Comp Executive that CDI still considers the Applied Underwriters’ EquityComp program’s Reinsurance Participation Agreement (RPA) to be “absolutely” an ancillary agreement under insurance code 11658 which requires filing and approval before it is used. The Department has previously confirmed it has not been filed nor approved, although Workers’ Comp Executive has recently learned that one was filed recently and not approved. When asked if it was legal for Applied Underwriters’ or California Insurance Company to currently sell the RPA, she said: “The notice of hearing contends that CIC and AUCRA violate the insurance code if they issue new RPAs.”

CDI’s Kincaid blames the confusion on “an error in phrasing” in its June 29th news release. “We did not issue a C&D, but rather a notice to hearing, so there is no C&D in effect,” she tells Workers’ Comp Executive. The news release’s assertions were picked up by a wide range of both general and trade media all over the country.

The release in question is, as of this writing, on the department’s website with its original format and content. The release states that “The order requires CIC and AUCRA to cease and desist from issuing or renewing any workers’ compensation policy that uses an unfiled and unapproved ancillary or collateral agreement consistent with the decision.”

Applied Underwriters’, for its part, is telling brokers it has stopped selling the program until the issues with the Department are resolved.

CDI Confusion & Disarray?

The Department’s apparent confusion and disarray seem to be a reaction to both its own failure and an aggressive missive sent by Applied Underwriters to its brokers. CDI’s conflicting statements appear to come from a mistake. It failed to notice specifically the cease and desist order under the authority it has using insurance code section 1065.2 which provides CDI with the ability to impose an immediate cease and desist and to then hold a hearing. Instead, it used section 1065.1 which require a hearing in advance of the order. See our coverage of the insurance code issues here in our story entitled “And A Fight Breaks Out.”

All of this action comes against a backdrop where the cease and desist hearing originally scheduled for this week has been delayed. Kincaid tells Workers’ Comp Executive that “the parties also by mutual agreement are delaying an administrative hearing to impose a cease and desist order under Insurance Code section 1065.1.”

Superior Court Refuses Applied’s TRO Request

A Los Angeles Superior Court judge, meanwhile, rejected a request from the Berkshire Hathaway subsidiary to step in and block Insurance Commissioner Dave Jones’ efforts to invalidate the company’s EquityComp program for using unfiled reinsurance participation agreements (RPAs). Instead, the court is allowing the state’s administrative process to play out.

“[T]he court finds the relief requested is premature,” Judge James Chalfant held in denying Applied Underwriters request for a temporary restraining order. The carrier wanted to block CDI’s hearing on a cease and desist order and to prevent enforcement of the Commissioner’s precedential decision in the Shasta Linen case that declares the RPAs to be void as a matter of law.

Judge Chalfant is also assigned to hear Applied’s petition for writ of mandamus in the underlying Shasta Linen case.

See all of our Applied Underwriters EquityComp Program stories 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.