Flash Report: NJ Notices Suspension of Applied Underwriters

The New Jersey Department has ordered Applied Underwriters and various subsidiaries to show cause as to why its Continental Insurance Company subsidiary shouldn’t be suspended from transacting workers’ compensation insurance and – equally importantly – why it should not be ordered to “unwind” the Applied Underwriters EquityComp and SolutionOne programs back to 2008. The suspension also applies to other subsidiaries including Applied Risk Services’ insurer producer license, which is also under the show cause order.

The New Jersey Department of Banking and Insurance says Applied Underwriters “duped” at least 300 New Jersey employers by selling an unfiled and unapproved workers’ comp program that ended up charging more than its approved premium rates. The state says the program included an impermissible retrospective rating plan provision that left those employers owing the Berkshire Hathaway subsidiary (NYSE: BRK.A and BRK.B)  nearly $19 million. Or not.

More Regulatory Questions

Berkshire Hathaway is in the process of selling off the subsidiary, but at this time Applied is still part of the Buffett empire.

The terms of the sale are unknown at this time as are what representations and guarantees Berkshire Hathaway might be making to potential buyers. There are certainly questions as to the ultimate liabilities the corporation and its insurer subsidiaries face, experts say.

It is also undeterminable at this time whether or not regulators will permit the sale given the unknown liabilities and the hundreds of cases filed against it by employers – and by Applied against employers – in state and federal courts around the country as well as in Administrative law courts in Departments around the country. The issues of an alien buyer opens other issues concerning the ability of employers to reasonably collect judgments and other monies due and concerning regulators ability to enforce actions.

NJ Includes Premium Collection

New Jersey is also prepared to order Applied to “cease and desist from collecting additional premiums from insured New Jersey businesses that may have paid less than they would have under their Continental policy including voiding all contracts, liens or promissory notes” regarding additional premium due under the retrospective rating plan.

New Jersey Commissioner Marlene Caride filed action March 6th and gave Applied 20 days in which to seek a hearing. The action covers Applied’s controversial EquityComp and SolutionOne programs that are at the heart of lawsuits across the nation, as well as its PremierExclusive program.

New Jersey’s action is consistent with the tone of prior enforcement actions in other states including California, and with numerous court decision at various levels in various jurisdictions.

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