Lawsuit accuses state insurance commissioner of overstepping authority to help campaign donors

San Diego Union-Tribune (CA)

Aug. 8--Two Northern California employers that were ordered by the state Department of Insurance to pay workers' compensation premiums they never agreed to are suing Insurance Commissioner Ricardo Lara, saying he exceeded his legal authority.

The attorney representing the companies, Oceanside Laundry and RDR Builders, also claimed in the suit that Lara's actions were unlawful because Lara issued his decisions after a statutory deadline.

"Petitioners seek a determination that the commissioner exceeded his authority when he issued orders of stay in each of these matters beyond the regulatory time limit allowing him to do so, then issuing amended orders that were beyond his jurisdiction to make as well as contrary to the admitted evidence," lawyer Larry Lichtenegger wrote in the complaint.

The suit alleges that the insurance commissioner is charged with approving rates proposed by California insurers and has no legal authority to adjudicate breach-of-contract claims.

"Ordinary contract disputes are not within the scope of the commissioner's jurisdiction," the lawsuit says.

A spokesman for the Department of Insurance said his office does not comment on claims in pending litigation.

"We look forward to an impartial review of the facts by a superior court," said Michael Soller, deputy insurance commissioner.

Oceanside Laundry and RDR Builders, which are based in Santa Cruz and San Joaquin counties, respectively, are at the center of a political controversy that has enveloped the newly elected commissioner since last month.

Lara, who won a close election in November after pledging not to accept campaign donations from insurers, accepted tens of thousands of dollars in contributions from insurance company executives and their spouses, The San Diego Union-Tribune reported.

Hours after the report was published, the former state senator from Bell Gardens called the donations an oversight. He thanked the Union-Tribune for bringing them to his attention and promised to return the money.

Later in July, the newspaper reported that Lara had intervened in four cases to benefit Applied Underwriters, the workers' compensation insurer whose executive and spouse donated $31,000 to Lara's 2022 reelection committee.

In an interview with KQED last month, Lara acknowledged meeting with Applied Underwriters president and co-founder Steven Menzies to discuss cases pending before regulators as well as a proposed sale of the company that requires department approval.

State law prohibits so-called ex parte conversations.

Lichtenegger, who also represents other Applied Underwriters customers in proceedings before the Department of Insurance, said in the lawsuit that Lara appeared to intervene in the proceedings in order to benefit his political donors.

Menzies "is attempting to influence the commissioner's actions in these administrative appeals but also is in the process of buying the Applied Underwriters' family of companies back from Berkshire Hathaway so he can move them to the Cayman Islands and needs the approval of the commissioner to do that," Lichtenegger wrote.

Applied Underwriters is what's called a real party in interest to the litigation, meaning it has an interest in the allegations and outcome of the case. The company has declined to discuss its political contributions or the complaints filed by California policyholders.

The lawsuit accuses Applied Underwriters of marketing a low-cost workers' compensation insurance product called EquityComp, which was supposed to base premiums on losses rather than a guaranteed-cost or fixed-rate policy.

After the agreements were signed, Applied Underwriters allegedly imposed excess fees and other expenses on Oceanside Laundry and RDR Builders, and Department of Insurance judges issued decisions saying those charges should not be paid.

But Lara amended the judges' orders last month, reversing those decisions, and directed Oceanside Laundry and RDR Builders to pay the guaranteed-cost premium even though those costs were not specified in the agreements with Applied Underwriters, the lawsuit said.

"Such an order would require them to pay hundreds of thousands (or) more dollars than they have already paid for a guaranteed-cost they did not want, did not agree to, nor had previously been required to pay," the lawsuit states.

The 14-page complaint was filed in San Francisco Superior Court. It asks a judge to find that Lara exceeded his legal authority and to strike statements by the commissioner outlining his proposed remedy to the dispute between the policyholders and the insurer.

The California insurance commissioner became an elected position after voters approved a 1988 ballot measure rewriting the rules over industry regulation. The position supervises some $310 billion in annual premiums.

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