Settlement Deal Between California Commissioner and Applied Underwriters

California Insurance Commissioner Dave Jones announced today that the California Department of Insurance has reached a settlement agreement with Berkshire Hathaway subsidiaries to stop what he calls “bait and switch marketing tactics” used to sell a workers’ compensation insurance products.

In May 2016, in response to a complaint by a small business owner and after a hearing by an administrative law judge, Jones determined California Insurance Company and Applied Underwriters, both subsidiaries of Berkshire Hathaway, were selling a workers’ comp product with illegal side agreements that modified the obligations of the parties under the policy.

Such agreements, known as Reinsurance Participation Agreements or RPAs, require department review and approval. The Berkshire companies used the agreements without first obtaining the department’s approval.

For example, the RPA did not disclose basic premium information, levied penalties for policy cancellation, failed to disclose required binding arbitration outside the U.S., and obfuscated the methodology for calculating premiums, deposits, or other payments due.

Jones concluded that Applied Underwriters was trying to avoid regulatory oversight.

The settlement notes that the RPA was an unfiled product but the insurers conceded that it falls under the commissioner’s oversight and jurisdiction and has to be filed with the Department of Insurance. It also includes new disclosures that will provide policyholders with key details regarding the product.

“This is a significant victory in protecting California businesses from sophisticated bait and switch marketing tactics,” Jones said in a statement. “We have gone to the limit of our authority over workers’ compensation insurance products in winning concessions that eliminate oppressive contract terms, such as the insurer requiring arbitration in the British Virgin Islands. The revised product terms include lower rates, improved disclosures, and limiting sale of the product only to companies that can absorb the substantial risks.”

Related:

• Berkshire’s Applied Underwriters Defends Workers’ Comp Products, Says Brokers Should Not Be at Risk
• Could Trouble with Comp Products from Berkshire Affiliates Land in Brokers’ Laps?
• Berkshire Accused of Stealing Workers’ Comp Premiums in Manhattan Lawsuit
• Class Action Follows California Commissioner’s Decision in Applied Dispute
• Applied Underwriters’ Workers’ Comp Business Faulted by California Regulator
• Berkshire Agrees to Stop Selling EquityComp Policies in California