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California declines approval of Applied Underwriters sale


The California Department of Insurance has declined to approve the sale of an Applied Underwriters’ subsidiary, California Insurance Co., but the Omaha, Nebraska-based workers compensation insurer argues that approval is not necessary since the subsidiary is no longer domiciled in the Golden State.

On Wednesday, Berkshire Hathaway Inc. announced that it had agreed to sell Applied Underwriters Inc. in a $920 million transaction to company founder and president Steve Menzies and private equity investment firm New York-based Quadrant Management Inc. However, the California Department of Insurance said in a statement that it had not approved the sale of California Insurance Co., one of several subsidiaries that are part of the larger sale.

Applied Underwriters argued that the California Department of Insurance’s “ineffective review process” spanning eight months and its refusal to approve or disapprove the transaction led the subsidiary to seek domicile in New Mexico. No objections were made to the state transfer at a public hearing, according to the statement.

A spokesman for the California Department of Insurance said its department received less than 24 hours notice of the hearing in New Mexico. CDI attorney Laszlo Komjathy said in a letter to California Insurance Co. that attempting to “merge … into a newly-formed New Mexico domiciled insurer without requesting or obtaining the prior approval” from the insurance commissioner was in violation of California law, and did not “divest” the CDI of its authority to review the transaction and make a determination.

Applied Underwriters said that California Insurance Co. will no longer write business in California. The New Mexico Superintendent of Insurance approved the sale Oct. 9.

California Insurance Co. was purchased by Applied Underwriters with California’s approval in 2003. Applied claimed that CDI refused to approve nor disapprove the transaction after the deadline had passed.

The Texas Department of Insurance approved the sale of subsidiary Texas Insurance Co. on Oct. 10. In September, the Iowa Insurance Division signed off on the sale of Continental Indemnity Co., Pennsylvania Insurance Co. and Illinois Insurance Co., all of which were domiciled in Iowa.






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