Berkshire settles California’s 'bait and switch' insurance dispute

Berkshire insurance subsidiaries have reached an agreement with California’s Department of Insurance by committing to lower rates, improved disclosures, and limiting sale of their worker’ compensation insurance.

Berkshire units California Insurance Company and Applied Underwriters used marketing tactics referred to as “bait and switch” to sell a workers' compensation insurance product, which led to numerous complaints from employers caught up in the costly and complicated policies, according to a statement by the insurance regulator.

"We have gone to the limit of our authority over workers' compensation insurance products in winning concessions that eliminate oppressive contract terms, such as the insurer requiring arbitration in the British Virgin Islands,” said insurance commissioner Dave Jones.

In May 2016, in response to a complaint by a small business owner and after a hearing by an administrative law judge, the commissioner determined California Insurance Company and Applied Underwriters were selling a workers' compensation product with illegal side agreements that modified the obligations of the parties under the policy.

Such agreements, known as Reinsurance Participation Agreements or RPAs, require department review and approval—the Berkshire companies used the agreements without first obtaining the department's approval, according to the regulator.

The RPA did not, for example, disclose basic premium information, levied hefty penalties for policy cancellation, failed to disclose required binding arbitration outside the US, and obfuscated the methodology for calculating premiums, deposits, or other payments due, the regulator said.

The department concluded Applied Underwriters was trying to avoid regulatory oversight, as noted in their US patent application where the company described how its patent purports to evade regulatory oversight and ostensibly allows the company to sell a complicated type of policy to smaller businesses, which most states prohibit.

Even the revised products are not appropriate for businesses unable to adequately evaluate the pricing, obligations, and risks of such a complex product, according to the regulator’s statement.

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