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Applied sues California again in response to New Mexico threats


Applied Underwriters Inc.’s California Insurance Co. filed a complaint in federal court on Thursday accusing the California Department of Insurance of illegally blocking the insurer’s attempts to re-domicile in New Mexico, marking the latest in a string of battles between Applied and Golden State regulators.

On Tuesday, the Office of the Superintendent of Insurance in New Mexico issued an order to CIC, demanding the insurer immediately comply with state regulations as required for its approved re-domestication in New Mexico or face financial penalties and revocation of its Certificate of Authority.

Omaha, Nebraska-based Applied responded by filing a complaint in U.S. District Court for the Eastern District of California against California Insurance Commissioner Ricardo Lara, alleging that he and others in the state’s insurance department have been acting in bad faith by imposing an “arbitrary, illogical and illegal conservatorship of CIC to obstruct its New Mexico re-domestication,” Applied said in a statement.

Since Berkshire Hathaway Inc. sold off Applied and its subsidiaries in 2019 to Applied’s founder and president, Steve Menzies, and a private equity firm in a $920 million deal, the workers compensation insurer has been fighting with California regulators for declining to approve the sale of CIC on the basis that Applied attempted to re-domicile CIC in New Mexico without California’s approval.

In November 2019, a San Mateo County Superior Court judge appointed the California Department of Insurance conservator of CIC, and in October 2020 the department filed a rehabilitation plan for CIC that would require CIC to transfer its book of business to another California-admitted insurer and provide policyholders a reasonable opportunity to resolve their claims related to Applied’s SolutionsOne and EquityComp programs.

A day after the rehabilitation plan was filed, Applied sued California and Mr. Lara in district court, also alleging that the insurance department and commissioner placed CIC into a conservatorship under false pretenses and had a “vendetta” against the insurer.

This latest lawsuit asserts that the California insurance department “presented no rationale” for its conservatorship or rehabilitation plan, and that the transfer of its entire book of California business to a competitor would force the company to settle more than 40 separate civil legal proceedings.

"Incredibly, CDI has targeted CIC despite our good citizenship in paying claims …,” Jeffrey A. Silver, the insurer’s attorney, said in a statement.

In his declaration in support of the rehabilitation plan, Joseph Holloway, the California conservator appointed to oversee the day-to-day operations of CIC, said the insurer violated the terms of the court’s conservation order in March 2020 when it made a $20 million non-collateralized loan to Applied Underwriters without notice and authorization from CDI or himself. 

A hearing over the rehabilitation plan is scheduled in San Mateo Superior Court on March 4.

This fight with California is not Applied’s first. In 2017, CDI accused CIC and another Applied subsidiary, Applied Underwriters Captive Risk Assurance Co., of using “bait and switch” marketing tactics for workers compensation coverage. The insurer has also been involved in disputes in New Jersey, New York and Vermont, with insurance regulators accusing the insurer of selling unapproved workers compensation programs.


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