Two insurance units of the monolithic
Berkshire Hathaway Inc. have come under fire for circumventing a state law designed to shield small businesses from unpredictable workers’ compensation costs.
California Insurance Commissioner Dave Jones came down against the company in a complaint alleging the California Insurance Company, a Berkshire workers’ comp carrier, filed one set of rates and policies with the state department, but sold businesses different policies through
Applied Underwriters, another Berkshire company.
The complaint was forwarded by a Sacramento linen-rental firm, which said it had been unexpectedly charged hundreds of thousands of dollars in workers’ compensation coverage for its 60 workers.
The program is known as a “profit-sharing arrangement,” in which the premium paid by the insured is adjusted for the actual costs of claims incurred while the policy is in place, rather than expected claims.
Shasta Linen Supply Inc. said it had obtained a policy from California Insurance before buying a subsequent agreement issued by Applied Underwriters that replaced the terms in the original policy. These terms, Jones said, hadn’t been submitted to the Insurance Department for review.
In an interview with the
Wall Street Journal, Jones said the events were made with an “intent to circumvent government regulators,” and that he finds it “very, very troubling.”
His decision on the side of Shasta orders California Insurance Company to repay premium amounts paid in excess of the rates under the policies that were filed. The Insurance Department will also evaluate other policies and rates sold by Berkshire companies, which may lead to further action by Jones.
The department said other state insurance offices are also seeking to prohibit the sale of similar policies from Berkshire Hathaway companies.
A spokesperson for Applied Underwriters contested Jones’ decision in an interview with the
Journal.
“The company strongly disagrees with the commissioner’s decision and intends to vigorously pursue all legal avenues,” the spokesperson said.
The decision was made after Jones considered testimony and other evidence gathered during a state administrative law proceeding last year. The judge in the case recommended the commissioner find the arrangement “an unfiled and unapproved” agreement.
Jones’ decision goes against one of the largest companies in the United States, as well as the state of California. It is one of the state’s 10 biggest workers’ compensation carriers, according to NAIC data.
