Flash Report: Lara Sued Over Applied Underwriters Case Reversals

By: Dale Debber and Brad Cain
CWCI 55th Annual Meeting March 21, 2019 Insurance Commissioner Ricardo Lara
Insurance Commissioner Ricardo Lara

A writ to strike down California Insurance Commissioner Ricardo Lara’s overturning of decisions has been filed by two employers in San Francisco Superior Court. The comes on the heels of Lara taking money from people related to Applied Underwriters, meeting with Applied president Steve Menzies, then changing decisions of the Administrative Law Judges. At stake is hundreds of millions of dollars in costs to California employers – a potential windfall for Applied.

The employers, Oceanside laundry and RDR Builders, are only two of the cases in which Lara interceded and overturned two ALJ decisions that were averse to Applied Underwriters’ interests. Attorney Larry Lichtenegger argues the Commissioner exceeded his authority and missed critical statutory deadlines in issuing the amended orders which financially benefit Applied. The disputes, like so many others, stem from each company’s participation in Applied Underwriters’ controversial EquityComp program.

A Writ of Mandamus is a judicial remedy in the form of an order from a court to any government, subordinate court, or public authority to do (or not do), some specific act which that body is obliged under law to do (or refrain from doing), and which is in the nature of public duty, and in some instances one of a statutory obligation.

The Writ

The companies are seeking to strike from the amended orders “all statements by the Commissioner regarding a remedy as errors of law in that the [sic] rulings exceeded the Commissioner’s authority and were not supported by the evidence,” says attorney Larry Lichtenegger in his petition.

The petition notes that Lara’s office issued the amended orders after the Commissioner received political contributions from individuals linked to Applied and took a private meeting with Applied Underwriters CEO Steve Menzies. Both actions have generated headlines and editorials rebuking the Commissioner. The amended orders also followed an untimely petition for reconsideration of the original order.

“Commissioner Lara, apparently in order to live up to the obligation created by the donation from Applied, has recently decided not to follow that standard and act in a way contrary to established law that ordinary contract disputes are not within the scope of the Commissioner’s jurisdiction.” – Lichtenegger’s Writ 

“[T]he only issue that should have been resolved was whether the [EquityComp reinsurance participation agreement] was an illegal and void contract under the Insurance Commissioner’s prior precedential decision in Shasta Linen. That should have been the limit of the Commissioner’s rulings, but for the illicit campaign contribution of Applied and the inappropriate visit of [Applied Underwriters CEO Steve Menzies] allowed by the Commissioner that is not what happened here,” says the petition. “Instead, the Commissioner decided not only to ignore the persuasive evidence presented by the Petitioners that the policies lacked mutuality but exceeded his authority by adjudicating the breach of contract claim in favor of Respondents.”

Employers are Due Money from Applied

Lichtenegger says each company bought into the EquityComp program for its loss-sensitive provisions and under those terms are due hundreds of thousands of dollars from Applied. Under the amended orders, however, each company would have to walk away from these returns and then pay hundreds of thousands of dollars more under guaranteed cost policies that neither Oceanside nor RDR ever negotiated or agreed to pay the prices in the policies. He maintains that it was never contemplated that the parties would pay the prices in the guaranteed cost policies.

The guaranteed cost polices from California Insurance Company were never quoted to nor agreed to by the employers. They were paid for by Applied, not the employers who charged employers by a separate mechanism not part of the policy premium and not entirely based upon payroll.

Contractual Dispute

The petition maintains that absent a statute or regulation gives the California Department of Insurance specific authority to resolve common law issues, such as contract disputes, and then award damages, the agency is without power to do so. However, Lichtenegger says that is exactly what the Commissioner is attempting to do.

“While it is clear that the Insurance Commissioner has the authority to declare insurance policies, endorsements, and/or collateral agreements to be void for violating the Insurance Code [see Insurance Code § 12928.5] and may declare rates charged by an insurance company unlawful [see Insurance Code § 11737], it is the longstanding policy of the Department of Insurance to recognize that under existing common law, as well as statutory law, it does not have any authority to pass judgment on breach of contract or quantum meruit claims that might be asserted by an insurance company in court after the Insurance Commissioner has declared a policy or part of a policy to be unlawful,” Lichtenegger writes. “Commissioner Lara, apparently in order to live up to the obligation created by the donation from Applied, has recently decided not to follow that standard and act in a way contrary to established law that ordinary contract disputes are not within the scope of the Commissioner’s jurisdiction.”

The petition also rejects Lara’s reasoning, made in some statements to the media, that the ALJ’s orders had to be changed to protect the company’s injured workers from losing coverage. Lichtenegger maintains that Insurance Code Section 11658(c) keeps the insurance policy in force even when part of it, such as a form or endorsement, is deemed illegal. Lara’s statements, therefore, were either misinformed, ignorant, or incorrect.

“Unfortunately, the bottom line is that the wording of the new Decision[s] by the Commissioner is such that it appears that the Commissioner has ordered Petitioners to pay the legal rates for the policies regardless of the fact that it was conclusively demonstrated that neither Oceanside nor RDR ever agreed to do so,” the petition states.

“If this reading of the Insurance Commissioner’s decision is the correct view, the decision is not only not supported by the facts, but directly contrary to the facts specifically found, and vastly in excess of the Insurance Commissioner’s authority, because he has no authority whatsoever to decide whether Petitioners breached any contract, even an insurance contract.”

See our other stories about Applied Underwriters’ here.

See our timeline of corruption 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.