Flash Report: Court Approves California Department’s Rehabilitation Plan

“The Commissioner’s Application and Application for Order Approving Rehabilitation plan is GRANTED and the Rehabilitation Plan is adopted as amended,” San Mateo Superior Court Judge Susan Greenberg wrote in her final decision and order approving the California Department of Insurance’s rehabilitation plan for Applied Underwriters’ conserved California Insurance Company. Other than noting CIC’s general and specific objections to the plan, she did not waiver from the findings and orders in the earlier Tentative Decision. She held there is a rational basis for the Department’s plan, that the Department is not acting arbitrarily, and that the plan should be executed.

Like the tentative decision, the order is lengthy, contains findings of fact, cuts the carrier’s management, and, over objections, cites its outside attorney, Shand Stephens, of the law firm DLA Piper, for misrepresenting the facts in a cited document.

The decision opens the door to resolving years of litigation for dozens of California employers, removing claims from Applied Underwriters’ control, and finalizing CIC’s exit from the state.

But the execution is not likely immediate. Observers expect Applied Underwriters’, in its usual scorched Earth style, to appeal the decision, lose, appeal again, lose again, and get denied by the Supreme Court. It wouldn’t be the first time.

The rehabilitation plan as adopted would:

  • Shield the existing workers’ comp claims from any further manipulation by Applied Underwriters’ for its benefit at the detriment of policyholders;
  • Give policyholders three options to resolve the ongoing litigation on equitable terms;
  • Require California Insurance Company to surrender its California certificate of authority and complete its merger with a New Mexico alter-ego.

The rehabilitation plan envisions an auction to allow an admitted, unaffiliated insurer to assume for fair market value (can you spell triable issue?) CIC’s in-force California policies and reinsure the liabilities under the expired California policies. If no independent carriers are interested, the plan calls for a transfer to an affiliated insurer, with control over claims given to an independent third-party administrator.

The plan also includes three options for settling the outstanding many policyholder claims over the reinsurance participation agreements (RPA) used in the EquityComp and SolutionOne programs.

After those actions are completed, CIC will surrender its California certificate of authority and be allowed to merge with its New Mexico alter-ego. The court is retaining oversight throughout this process.

“The Court’s Order Appointing Insurance Commissioner as Conservator and Restraining Orders remain in full force and effect until expressly lifted or amended by subsequent order of the Court,” Judge Greenberg wrote. “The Court shall continue to exercise sole and exclusive jurisdiction over this Rehabilitation Plan and any claims pending against CIC.”

Copies of the San Mateo court’s final statement of decision and order are available in our Resources section or by clicking here..