Flash Report: Market Alert Berkshire Cos is Now Competing with Applied

Against the backdrop of a severe regulatory action against Applied Underwriters’ by the California Department of Insurance, Berkshire Hathaway carriers have lifted the moratorium on writing each other’s business. As of last week, it’s every (wo)man – make that carrier – for itself.

Reliable industry sources tell Workers’ Comp Executive that Berkshire Hathaway Homestate Insurance Company will now entertain submissions, mid-term or renewal, coming out of Applied Underwriters providing the submission comes from the holding broker. Other Berkshire affiliates are, Workers’ Comp Executive understands, free to do the same.

Applied Underwriters was issued a cease and desist order by the CDI. Applied Underwriters’ was ordered to stop writing any business that involves it’s Reinsurance Participation Agreement – RPA – or any other unfiled form or ancillary agreement. CDI has held that the RPA is illegal and therefore void and unenforceable.

Many large brokers have issued mandates either to replace Applied Underwriters’ policies mid-term or to move them upon renewal. There is a significant market disruption as brokers of all sizes scramble to protect clients and save accounts.

Costly Dangers Afoot

But various dangers lurk in the muddy waters of that famous insurance cry of angst, “Oh what the hell do I do now?”

In some cases, for some clients changing midterm could be costly in any one of several ways: For one, changing the effective date will have an effect on the rating periods for the experience mod ( X-Mod) and that change could be positive or negative. For another, it may be in the interest of some insureds to choose to have counsel enforce the “illegal” contract because their loss ratio is good and money could be due back to them. Not canceling could be but won’t necessarily be a determinative factor. How does one not cancel an “illegal” contract” and given that what parts ought to be enforced, if any. Nobody knows yet.

The Department of Insurance decision in the Shasta Linen case reverted costs from those outlined in the RPA, back to the “underlying” California Insurance Company policy and Applied was ordered to return all money remaining in the cell. But such an outcome may not work well for insured in a different position in the active term, with a different loss ratio, or depending upon a variety of other factors.

Paid subscribers can read more about these issues in the paid premium edition of Workers’ Comp Executive.

Filed in Sacramento by Dale Debber

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