New York fines Berkshire unit $3M over unlicensed comp policies

Applied Underwriters Inc. will pay a $3 million civil fine to the New York Department of Financial Services for writing workers compensation insurance while unlicensed in the state, the department said Thursday.

The department’s superintendent, Linda Lacewell, said in a statement that Applied Underwriters, a subsidiary of Omaha, Nebraska-based Berkshire Hathaway Inc., overcharged many small and medium-size employers for workers compensation products bundled with side reinsurance participation agreements that were not filed with or approved by the department, and therefore violated New York law.

“DFS is committed to protecting all consumers, including our small business owners and today we are holding Applied Underwriters responsible for illegally operating outside of the department’s oversight to sell a complex product to hundreds of New York small and medium-sized businesses,” Ms. Lacewell said in the statement.

Applied began offering workers compensation insurance products in New York in 2010 under the names SolutionOne and EquityComp, which were issued by Applied subsidiary Continental Indemnity Co., according to the department. The products also included a reinsurance participation agreement as part of the bundle, but the department alleges that the agreement was not filed with the state, and that the program as a whole was not reviewed or approved by the department.

In its investigation of Applied Underwriters, the department said that the formula used to calculate costs was presented to employers in a way that was “misleading” and that many New York employers paid “significantly more” for their workers comp coverage through Applied’s program.

The department’s investigation also noted that Applied required employers to wait three years, or in some cases up to seven years, for advertised “profit distributions.”

Under the terms of the consent order, Applied will not offer the bundle in New York or any equivalent side agreements or enforce any arbitration provisions in existing contracts and will file any future products with the department for approval. The consent order also requires that Applied return all additional premiums owed to residents who were assessed greater amounts than they would otherwise have paid via filed and approved guaranteed-cost workers compensation insurance rates.

Applied Underwriters said in a statement that the company is pleased with the New York settlement, which its attorney, Jeffrey Silver, said has ended the “costly process involving the company’s captive insurance program, a loss sensitive program which is similar to other captive insurance programs” operating in the state. 

“There was no wrongdoing on our part whatsoever, but there were filings that the department thought should have been made,” said Mr. Silver in a news release. “Cooperating in full with the department’s inquiry as acknowledged by DFS, we agreed to pay a $3 million fine and agreed to end this long and costly contention over the product without any admission of wrongdoing.”