Flash Report: CDI: Applied Merger Needed Prior Approval


The California Department of Insurance is disputing claims by the New Mexico Insurance Superintendent that it essentially greenlighted the purported merger of Applied Underwriters’ California Insurance Company with a newly created carrier in New Mexico.

The Department also doubled down on its insistence that California law requires prior approval for any sale or merger of a California domiciled insurance company.

“Out of respect for the New Mexico Office of Superintendent of Insurance, we decline to comment on New Mexico’s Form A approval process. As with all states, New Mexico has its own process and standards for reviewing insurance transactions subject to its jurisdiction. However, to be clear, at no time did California agree that the proposed merger presented no risk to California policyholders or that the prior approval for the merger by California was not required,” the Department says in an e-mailed statement (emphasis added).

The Department has not responded to requests for additional comment, but the meat of its position is thus:

Regardless of the actions taken by the New Mexico Superintendent, California law requires prior approval of any sale or merger of a California domestic insurance company. For any sale of an insurance company transacting within California’s $310 billion insurance market, our primary concern remains the protection of California’s policyholders. The reasons for California’s denial of the California Insurance Company Form A application are stated expressly in our October 18 letter to the company.”

Underlying this statement is the unspoken assertion that the New Mexico merger did not occur because California never gave its approval. In fact, CDI explicitly denied the Form A seeking a transfer CIC ownership to Applied CEO Steve Menzies, citing concerns about “the competence, experience, and integrity of those persons who would control the operations of California Insurance Company.”

Following the logic that the merger of CIC never occurred, then CIC’s certificate of authority would still be in place, and its in-force policies are still in force and valid for Labor Code section 3700(a) provisions. Again, this is the logical progression from CDI’s position that a merger or sale requires prior approval and that it explicitly denied CIC’s request for a change in ownership. This process would be more straightforward if the Department would make a statement regarding the status of current CIC policyholders in California. Still, as of this morning, it has not responded to multiple requests to do so.

So many questions remain – If CDI did not approve the sale in the first place, did it occur, or is Berkshire Hathaway still the owner of the myriad of Applied organizations and entities? Did the New Mexico merger occur or not – Applied and New Mexico says yes – CDI and California law says no.

The California Department professional staff we know is working on these issues. We also know there are communications – what one observer called a game of brinksmanship happening between the parties.

But, like all things Applied clarity is at best opaque and perhaps obscure. As the 1940s radio program The Shadow’s tagline used to say: “Who knows what evil lurks within the hearts of men?”


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.