Federal Court Won’t Intervene in Applied Underwriters Case Against California Regulator

April 5, 2021

A California federal court has declined to get involved with a lawsuit that Applied Underwriters and the California Insurance Co. filed against the California Department of Insurance.

The case against the CDI is based upon a central claim that the CDI placed the carrier into conservatorship. The court abstained from hearing the suit over jurisdictional concerns.

Judge William Shubb of the U.S. District court for Eastern District of California in a 42-page ruling dated March 30, 2021 granted the CDI’s motion to dismiss Applied Underwriters’ bid to halt its efforts to take control of CIC. Shubb found that neither bad faith nor exceptional circumstances exceptions apply to justify the federal court enjoining the state court proceeding.

Jeffrey Silver, executive vice president and general counsel of Applied Underwriters, issued the following statement in response:

“We will certainly continue our fight to undo this gross injustice. The current decision hinged clearly upon technical jurisdictional issues, not on the merits. We are confident that when we do get a hearing on this, and we will, and have our ‘day in court’ that we will roundly prevail. The illegal power grab that the CDI has made in yet another case will be exposed readily and undone fully. We will attack and expose this illegal, immoral usurpation of
bureaucratic power and the parallel, exotic regulatory overreach that has facilitated It will not stand.”

A spokesman for Applied Underwriters declined to offer further comment. A CDI spokesman also declined to comment.

California Insurance Company of New Mexico filed suit in federal court in January to enjoin the CDI from continuing to take what the suit asserts are illegal, actions to block the approved redomestication of CIC and to undermine a financially sound insurer by instituting a conservatorship to gain control of CIC.

The suit came after the Office of the Superintendent of Insurance in New Mexico ordered CIC either to comply immediately with all regulations required under its approved redomestication to New Mexico or face financial penalties and possible revocation of the Company’s Certificate of Authority.

CDI got approval last year to place CIC in conservatorship and in January CDI filed a follow-up rehabilitation plan that would force CIC to sell its California business to another insurer.

CIC charges Lara and the other officials named with “unlawful” and “bad faith” action in imposing an arbitrary, illogical and illegal conservatorship of CIC to obstruct its New Mexico redomestication, after that move was approved by several states.

The suit asserts the CDI has continued to wage a bad faith campaign to harm CIC by prohibiting the company from transferring its assets and its business to New Mexico in compliance with the approved redomestication and the Order of New Mexico’s Superintendent of Insurance in October of 2019.

The suit also asserts that CDI filed an application for approval of a non-consensual rehabilitation plan in California State Court that would impose severe punitive measures on CIC for failure to comply with the conservatorship, but presented no rationale for the imposition in the first place.

Among other things, the CDI seeks to require CIC to transfer and reinsure its entire “book of California business” to an unaffiliated competitor, and to force CIC to settle more than 40 separate civil legal proceedings on arbitrary terms dictated by the Commissioner, in which the Company has valid defenses and an unqualified right to defend.

Applied Underwriters is headquartered in in Omaha, Neb. California Insurance Co. holds an A.M. Best Rating of “A.”