Farmer Smith & Lane LLP: Department of Insurance Determines Applied Underwriters Workers’ Compensation Program Violates California Law

Business Wire

SACRAMENTO, Calif.--(BUSINESS WIRE)-- Farmer Smith & Lane LLP announced today a ruling in favor of its client, Shasta Linen Supply, Inc., in a closely watched workers' compensation insurance administrative appeal before the California Department of Insurance. In the appeal proceedings, Shasta Linen Supply’s attorney Craig Farmer contended that the “EquityComp” workers’ compensation insurance program marketed and sold by Applied Underwriters, Inc., California Insurance Company and other affiliated entities wholly owned by Berkshire Hathaway, Inc., violated the California Insurance Code and Regulatory provisions by unlawfully using a Reinsurance Participation Agreement (RPA) to control workers’ compensation rates without first having the agreement filed and approved by the Department of Insurance as required by law.

Ruling in favor of Shasta Linen Supply in a lengthy decision adopted by the Insurance Commissioner of the State of California and set to become effective in February of 2016, Administrative Law Judge Kristin L. Rosi found the RPA to be illegal, void and unenforceable as a matter of law. Judge Rosi further found that the provisions of the RPA, among other things, “penalize California employers who chose to switch insurance carriers” constituting an “unfair business practice” that is “coercive and illegal.”

“This is a victory for Shasta Linen Company and any other employers that entered into Applied’s EquityComp program only to face onerous terms and conditions required by the unlawful, unfiled RPA,” said Mr. Farmer. “We’ve argued from day one that the RPA absolutely affected the insurance rates of our client, and that any such agreement is only enforceable when filed and approved by the state. Applied did not follow the law, did not have the RPA approved, and therefore cannot enforce its terms against Shasta to demand excessive payments.”

Mr. Farmer has filed a federal class action lawsuit in the Eastern District of California against Applied Underwriters and its affiliate entities. The complaint alleges on behalf of Shasta Linen Company and all those similarly situated that these defendants engaged in fraud and unfair, deceptive, and unlawful business practices in violation of California’s unfair competition law, Business & Professions Code section 17200, et seq. On behalf of the putative class, Mr. Farmer seeks damages, including punitive damages, as well as restitution and disgorgement of all monetary sums collected by the defendants pursuant to this illegal scheme.