California Insurance Commissioner Orders Berkshire Hathaway Insurers to Cease and Desist Sale of Illegal Workers’ Compensation Policies

Jun 29, 2016

 

The California Department of Insurance announced today, June 29, 2016, that two Berkshire Hathaway companies–the California Insurance Company (“CIC”) and Applied Underwriters Captive Risk Assurance Company, Inc. (“AUCRA”)–were issued a cease and desist order from the California Department of Insurance following California Insurance Commissioner Dave Jones’ decision in the recent Shasta Linen case that CIC used unapproved rates in a complex insurance scheme that circumvented regulatory review.

The order requires CIC and AUCRA to cease and desist from issuing or renewing any workers’ compensation policy that uses an unfiled and unapproved ancillary or collateral agreement consistent with the decision.

“My cease and desist order requires California Insurance Company and Applied Underwriters Captive Risk Assurance Company, Inc. to stop selling unfiled insurance policies, and stop renewing policies that have not been filed with the Department,” said Insurance Commissioner Dave Jones.  “The precedential Shasta Linen decision and order found that California Insurance Company was circumventing regulatory oversight by imposing unfiled rates and terms on a small family owned business, including terms requiring the small business to pay hundreds of thousands of dollars more and to resolve any disputes with the insurer in the British Virgin Islands.”

Last week Commissioner Jones announced that, under an “elaborate scheme,” CIC has been selling an insurance product called “EquityComp” that essentially left a California small family-owned business self-insured.  Commissioner Jones ruled that this complex insurance scheme circumvented regulatory review and found it to be void as a matter of law.

“Insurance companies are required to file rates and terms so we can make sure they are complying with the law,” he said. “These filing requirements were put in place to protect businesses from insurers seeking to take advantage of their market power.  Shasta Linen is an example of why it’s critically important to require insurers to file all their rate and terms.”

Insurance brokers licensed by the California Department of Insurance could face license suspension or non-renewal if they are found to knowingly misrepresent the terms or effect of an insurance policy to their clients. Brokers that continue to sell or renew these policies and represent them as lawful workers’ compensation policies are violating their responsibility to their clients and are not in compliance with the Insurance Code.

Hyperlinks to related documents are provided below:

 

 

 

Should you have any questions or comments, please contact Colodny Fass.

 

 

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