Precedential Decision Voids Reinsurance Participation Agreement.
RPNA recently continued its streak of protecting employers from onerous and unfair terms contained in side-agreements that have ensnared unwitting employers over the past few years. On December 17, 2018, the California Department of Insurance issued a precedential decision in favor of RPNA’s client Platinum Security.
The decision found that Applied Underwriters Captive Risk Assurance Company’s Reinsurance Participation Agreement was “void as a matter of law” and unenforceable against the insured. The Reinsurance Participation Agreement had been issued as part of the EquityComp workers’ compensation program.
After evidence was introduced at a one-day hearing on the matter, the Insurance Commissioner found that:
- The Reinsurance Participation Agreement was an un-filed and un-approved endorsement under Insurance Code section 11658 and a “collateral agreement,” which is prohibited under California Code of Regulations, title 10, section 2268;
- Applied Underwriters’ use of this un-filed and un-approved side agreement against Platinum resulted in a “misapplication of [the insurer’s] filed rating plan; and
- The Reinsurance Participation Agreement violated public policy and there was no compelling reason to enforce it.
Ultimately, the Insurance Commissioner ordered Applied Underwriters to remit to Platinum all premium paid under the Reinsurance Participation Agreement to the extent that it exceeded the guaranteed-cost premium that would have been owing on the three guaranteed-cost workers’ compensation policies that were issued in conjunction with the Reinsurance Participation Agreement. However, the decision did not establish any liability on Platinum’s part to Applied Underwriters.
The case was handled by RPNA Co-Managing Partner Nicholas P. Roxborough and Senior Associate Ryan Salsig.
In light of the Insurance Commissioner’s decision, employers who have purchased the EquityComp program are encouraged to seek the advice of counsel regarding their options under the program, even if the problems inherent in the program are not obvious.
The decision is available here.