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The New Jersey Department of Banking and Insurance issued an enforcement action Wednesday against Applied Underwriters Inc., accusing the company and its affiliates of marketing and selling unfiled and unapproved workers compensation programs in violation of New Jersey law.
The enforcement action states that the commissioner received information that Applied Underwriters, a subsidiary of Omaha, Nebraska-based Berkshire Hathaway Inc., along with related companies Applied Risk Services Inc., Applied Underwriters Captive Risk Assurance Co. Inc. and Continental Indemnity Co. violated provisions of New Jersey insurance laws by allegedly intentionally misrepresenting the terms of the actual or proposed insurance contracts, using alleged fraudulent practices. The complaint orders Allied to immediately cease and desist selling its EquityComp, SolutionOne and PremierExeclusive workers compensation programs.
The action also orders Continental to show why its authority to write workers comp insurance should not be suspended and why Allied should not be ordered to unwind its programs.
The complaint alleges that Applied is not an authorized or admitted insurer in New Jersey but noted that since 2008 the company has sold its workers compensation programs in the state to at least 300 employers. Although the guaranteed cost workers comp component of the programs was filed with the New Jersey Compensation Rating and Inspection Bureau and approved by the commissioner, according to the action, the reinsurance participation agreement with Applied Underwriters Captive Risk Assurance Co. and the other programs were allegedly not filed with the ratings bureau or approved.
Applied has also patented its reinsurance participation agreement, according to the state’s complaint, which allegedly could lead to higher and unpredictable assessments against an employer should a certain level of claims occur. California, Vermont and Wisconsin have concluded that the programs do not comply with their state insurance laws “because the RPA is a collateral agreement that modifies the underlying cost policy, and that the RPA was required to be filed with and approved by the insurance department of those states.” said the action.
The action also proposes to suspend the ability of Continental to write workers compensation insurance and to fine, suspend or revoke the insurance producer license of Applied Risk Services Inc.
New Jersey statutes allow for fines up to $1,000 for the first offense and not more than $2,000 for subsequent offenses of the state’s insurance laws. The complaint alleges that based on its sampling of the employers who purchased Applied products that 85% owe approximately $18.9 million to Applied, “often in excess of CRIB’s approved premium rates.”
The day before New Jersey filed this action, Applied filed a petition with the state seeking confirmation from insurance regulators that New Jersey insurance laws did enable the company to continue operating as a workers comp insurer.
A California appellate court has affirmed a trial judge’s decision not to compel arbitration based on language in workers compensation insurance side agreements issued by Berkshire Hathaway Inc. units that were not submitted for approval by the state’s insurance commissioner.