Under a ruling this week from the California Insurance Commissioner, your company may be insured under an unenforceable workers’ compensation program. You may also be entitled to a refund of premiums paid to California Insurance Company (CIC) and Applied Underwriters (Applied), two Berkshire Hathaway subsidiaries.

Our April 19, 2016 post discussed a decision from the California Department of Insurance finding that the EquityComp workers’ compensation program sold to Shasta Linen Supply by CIC and Applied is void as an unfiled collateral agreement. CIC appealed the administrative law judge’s decision finding the program void. Shasta appealed the denial of its claim for reimbursement of all sums in excess of actual claims paid. On June 20, 2016, the California Insurance Commissioner affirmed the ALJ’s decisions.

The Commissioner agreed that Applied’s “reinsurance participation agreement” (RPA) – which effectively turned CIC’s guaranteed cost policy into a “profit sharing” loss sensitive program – was a collateral agreement that was never filed with the Commissioner. The Commissioner ruled that the RPA is thus void and unenforceable. The Commissioner ruled that Shasta is bound to pay the guaranteed cost premiums under the CIC policies, but is entitled to a refund of all amounts paid in excess of those premiums.

The Commissioner issued a press release with the decision, at the end which the Commissioner warned:

As a result of this decision, Commissioner Jones has also directed the Department of Insurance to determine whether other unfiled insurance policies and rates are being sold by other Berkshire Hathaway companies and other workers’ compensation insurers. The outcome of that evaluation will determine what action the commissioner takes next, ranging from market conduct examinations, financial examination, and enforcement actions with potential penalties.

CIC and Applied Underwriters may challenge the Commissioner’s decision in court. At the same time, the Commissioner may move to compel CIC and Applied to cease marketing the policies and provide for an orderly transition of existing policies to lawful ones.

We strongly recommend that you review your workers compensation program to determine if the Commissioner’s ruling affects you. Depending on your experience, you may be entitled to a refund. You may also need to prepare to move into a different program at renewal.