Berkshire Hathaway units settle comp dispute with CaliforniaReprints
Berkshire Hathaway Inc. units have settled with California regulators over alleged “bait and switch” marketing tactics for workers compensation coverage.
According to a statement Thursday by the California Department of Insurance, the insurers have agreed to lower rates for certain coverages and make other changes to coverage terms.
The settlement applies to policies sold by Berkshire units California Insurance Co. and Applied Underwriters Captive Risk Assurance Co.
According to the statement, the insurers “were selling a workers compensation product with illegal side agreements that modified the obligations of the parties under the policy.”
The so-called reinsurance participation agreements do not disclose basic premium information, levy hefty penalties for policy cancellation and fail to disclose that disputes are subject to binding arbitration in the British Virgin Islands, and the methodology for calculating premiums and deposits is unclear under the agreements. In addition, the insurers did not obtain the required regulatory approval for the agreements, the statement said.
Under the terms of the settlement, the products will be revised to lower rates and improve disclosures, and the sale of the products will be limited to companies that can absorb the substantial risks involved, the statement said.
“This is a significant victory in protecting California businesses from sophisticated bait and switch marketing tactics,” said Insurance Commissioner Dave Jones in the statement.
The settlement stems from a lawsuit filed by a small business, Shasta Linen Supply, which was heard last year.
While California Insurance Co. sold Shasta Linen a guaranteed-cost workers comp policy submitted to the California Department of Insurance for review as the law requires, Applied Underwriters Captive Risk Assurance Co. sold the business a retroactive nonlinear insurance policy called EquityComp, which hadn’t been submitted for review, records show.
According to California Insurance Department statement at the time, under the EquityComp policy, “the risk of claims was essentially shifted back to the small business, which would end up paying additional premiums and fees in the policy term if it suffered from increasing claims.”
After reviewing the complaint, Mr. Jones in June 2016 ordered the insurers to provide a refund to Shasta Linen Supply and issued a cease-and-desist order against the insurers.
Regulators in several states are reviewing the policies issued by the Berkshire units, and the insurers also face a class action lawsuit in New York.
A spokeswoman for the California Department of Insurance said that as the insurers complied with the cease-and-desist order and stopped selling the policies last year; there is no financial component to the settlement.
Berkshire Hathaway did not immediately return a call seeking comment.