Flash Report: Applied Underwriters’ Thumbs Its Nose At CDI

By: Brad Cain

Applied Underwriters Captive Risk Assurance Company, (AUCRA), through its EquityComp program is still charging former insureds what some say are exorbitant run-off loss development factors on open claims after the termination of the policy periods or agreement. Attorney Larry Lichtenegger, who has the most cases against Applied Underwriters’ says the company is violating both the spirit and the letter of the cease and desist order it signed with the California Department of Insurance.

In other words, the Berkshire Hathaway (BRK.A (NYSE)) subsidiary agreed months ago not to charge the punitive run-off LDFs, but as of Oct. 31st, it appears it was still using them for at least one California company.

What happened to the insured – whose active term ended last March is that 4th – is that four small Cumulative Trama Claims were lodged recently by former employees after the expiration of the policy. AUCRA then applied the LDFs, which multiplies the reserves, contrary to its agreement with CDI, and demanded an additional $230,000 from the insured.

“It is my opinion that any reasonable interpretation of the stipulated cease and desist order means that Applied Underwriters is not allowed to apply the run-off LDFs in an insured’s Reinsurance Participation Agreement (RPA) at any time,” says Attorney Larry Lichtenegger.

He tells Workers’ Comp Executive that a Southern California service company is being told that it owes nearly $230,000 because of the use of run-off LDFs. “I reviewed the insured’s Oct. 31st plan analysis and compared it to table A of the insured’s RPA, and it is clear that Applied is using the run-off LDFs in the RPA in violation of the stipulated cease and desist order.”

Table A of the RPA lists the loss development factor to be applied to open and closed claims during the active and run-off phases of the policy. In this case, the insured’s term in the EquityComp program ended last March. Applied says the company owes an additional $229,121 as of Oct. 31, 2016.

Applied’s demand is being driven by the run-off loss development factors that inflate the reserve amount of the claims by factors of 3.92 for two claims and 4.12 for two others. The factors correspond to the run-off LDFs listed in Table A of the insured’s RPA for similarly aged claims.

As part of the cease and desist order that Applied voluntarily signed with the California Department of Insurance in September it agreed that “CIC and AUCRA will not apply run-off loss development factors to any Policy at any time, including upon termination, cancellation or nonrenewal of the RPA or upon termination, cancellation or nonrenewal of the Policy.” [emphasis added].

California Department of Insurance officials confirmed to Workers’ Comp Executive on Friday that the cease and desist order’s prohibition barring Applied Underwriters’ from using the punitive run-off LDFs is still in full effect.

The answer to the headline appears to be: Yes, Applied Underwriters continues to act however and do whatever it wants regardless of the law, regardless of its agreements. It continuies to show nothing but disrespect to California Insurance Commissioner Dave Jones.

The real question is when and how, if ever, will the Department act to protect business consumets and to regain the public’s respect.

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