Flash Report: Lichtenegger Demands CDI Hold Funds From Applied Carriers

The imbroglio encompassing embattled California Insurance Commissioner Ricardo Lara and his numerous favorable decisions concerning the Applied Underwriters’ EquityComp Program continues. Lara accepted money from individuals with ties to Applied Underwriters. Consumer Watchdog has called for corruption investigations around the transactions.

Attorney Larry Lichtenegger has demanded the Commissioner – if he approves the sale – hold back enough money to satisfy the claims of his clients – former EquityComp enrollees.

The $737 million pending-approval sale for Applied Underwriters has its licensed carriers going to its top executive Steve Menzies and Cayman Island-based United Insurance Company taking on a myriad of unlicensed operating companies. The deal is nearing a critical deadline. The agreement with Berkshire Hathaway (NYSE: BRK.A) calls for the sale – concerning the licensed entities – to have all the necessary regulatory approvals and to close “by no later than September 30, 2019.” The transaction requires the approval of numerous states insurance departments.

The unlicensed entities include a captive insurance company – Commercial General Indemnity Company – located in Hawaii, which is allegedly one of the reinsurers. It is owned by Berkshire Hathaway, Inc. and AU Holding Company – neither are licensed entities.

The California Department of Insurance confirmed that it received the required Form A concerning the sale.  CDI steadfastly refused to release the document or provide insight into its review of the agreement. The largest insurer, California Insurance Company, is domiciled here.

Workers’ Comp Executive has obtained the Form A filed with Iowa Insurance Division.

Lichtenegger says the looming deadline, the possibility of corruption, and the lack of transparency by CDI has former insureds who are actively in litigation with Applied concerned that CDI is not protecting their financial interests.

The litigants stand to recover millions if successful in their cases and want to make sure that Applied’s plan of operation going forward contemplates these liabilities.

In a letter emailed earlier today to CDI General Counsel Kenneth Schnoll and Emma Hirschhorn, division chief for CDI’s financial analysis unit, Lichtenegger called on the Department to ensure, if the sale is indeed approved, that a reserve is set up to cover Applied’s liabilities in these cases. Lichtenegger currently has 29 open cases involving employers who paid over $81 million into the illegal EquityComp program and based on their low losses are due a refund under the loss-sensitive program.

“The estimated returned premium that is owed because of the obligations breached by [Applied Underwriters Captive Risk Assurance Company] and CIC is $14,350,180, or roughly 18% of premium payments,” Lichtenegger says. “We contend that the Applicant should be required to set aside more than this 18% of premium sufficient to cover any errors in the estimates here as a reserve for reimbursement to employers who have been induced to enter into this illegal insurance scheme. Perhaps a 25% reserve would be appropriate.”

The total is just for Lichtenegger’s insured and do not contemplate other lawyer’s cases or cases still to be filed.

A copy of Lichtenegger’s letter to CDI is available here.

There was no immediate response from the Department.

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