Flash Report: Applied Underwriters’ Loses Arbitration Appeal Again

It seems that Applied Underwriters’, a unit of Berkshire Hathaway, (NYSE: BRK.A), either never learns or perhaps is desperately recalcitrant in its litigation strategies practices.  Not only did it lose a case but the Appellate Court chastised its argument.

The Fourth District Court of Appeal just did what the California Insurance Commissioner’s Administrative Law Judge and what numerous other tribunals and courts have done:  It found that the arbitration provision in Applied Underwriters’ reinsurance participation agreement (RPA) is unlawful and unenforceable because it was never filed nor approved. The decision affirms a finding by the trial court.

It is yet another strike against the controversial carrier and another win for litigator Larry Lichtenegger who represents many employers adverse to Applied Underwriters’.

“We also conclude the plain language of [Insurance Code] Section 11658 clearly requires appellants to file the arbitration provisions of the RPA and Request to Bind with the [Workers’ Compensation Insurance] Rating Bureau and obtain approval from the Insurance Commissioner,” the Fourth District wrote.

“The analysis is relatively simple. The delegation clause and other arbitration provisions constitute endorsements or at the very least collateral or ancillary agreements because they materially alter the dispute resolution obligations in the Commissioner-approved [California Insurance Company] Policy.”

The decision in Low Desert Empire Pizza v. Applied Underwriters blocks Applied’s attempt to compel arbitration in the dispute that stems from Low Desert’s time in the Applied Underwriters’ EquityComp program. “California insurance law and general principles of contract support concluding the provisions are unenforceable due to appellants’ failure to obtain regulatory approval,” the Fourth District wrote in its decision.

The court also scolded Applied’s lawyers for arguing that the trial court relied on the wrong version of Insurance Code section 2268 when it concluded the RPA and the Request to Bind, which included the arbitration provisions, were collateral agreements that needed to be filed and approved before they could be used.

“The argument is not well taken,” the Fourth District noted. “The [trial] court correctly relied on the version of the regulation in effect at the time the parties executed the agreements, and in any event, we see no practical difference for our purposes between the terms ‘collateral’ and ‘ancillary.’”

The opinion was filed as unpublished, but it is expected that petitions to publish the decision will be forthcoming to allow it to be cited as precedent in other cases. Copies of the decision as issued are available by clicking 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.