Less than a week before they were scheduled to be in court for the beginning of what could have been a long and bitter legal fight, the Washington State Office of the Insurance Commissioner (OIC) and Woodland Hills, Calif.-based Crusader Insurance Company reached a settlement on premium taxes owed by Crusader. In addition, Crusader agreed to include in any rate filings, fees to be charged by its brokers in the state.
If this sounds like small potatoes, it apparently was most of Idaho’s tuber crop to the administration of former Washington Insurance Commissioner Deborah Senn. Senn’s administration sought to hammer Crusader with a fine of $307,000; refunds to policyholders amounting to more than $500,000 (Crusader places the figure at about $800,000); and a four-month suspension of the company’s authority to do business in the state.
Within a month of taking office this January, Senn’s successor, Mike Kreidler, reached a settlement with Crusader. On the day the settlement was signed, Kreidler, speaking at the legislative day of the Independent Insurance Agents & Brokers of Washington, told of how he essentially negated an enforcement action of Senn’s and reached an agreement with an insurer. He didn’t mention Crusader, but many in the audience speculated he was talking about the California company.
Throughout his campaign last fall, Kreidler said he wanted to regulate in a fair, balanced manner. He repeatedly emphasized the advantage of working behind the scenes to ensure carriers are complying with state law, rather than publicizing alleged wrongful actions, which Senn did freely in the Crusader case.
“Our objective is to reach compliance,” said Gigi Zenk, Kreidler’s deputy commissioner of public affairs. “It doesn’t look like the company was intending to defraud people. However, it was against the law.”
Specifically, Crusader did not include in its rate filings fees charged by brokers on the small commercial accounts Crusader wrote in Washington from 1995 to mid-1998.
Cary Cheldin, Crusader president, said the insurer was willing to pay premium taxes on the policy fees if the fees were determined to be part of the premium. “That issue was never decided” during Senn’s tenure, Cheldin said.
It has been now. In its settlement with Kreidler’s administration, Crusader agreed to pay $13,714 in premium taxes and late tax penalties, which Cheldin said the company was willing to do all along. He said Crusader didn’t pay premium taxes on the fees because it was advised not to by an OIC staffer in February 1996. Zenk said she couldn’t confirm what the prior administration had told Crusader about its tax liabilities.
The Crusader-OIC dispute dates back to early 1998, a year in which the company wrote less than $1 million in business in Washington on about 250 policies. Initially, Crusader and Senn’s staff clashed over whether the fees needed to be disclosed on the insurer’s rate filings. Crusader said no because they were broker fees; the OIC countered that they were service fees because they were an inducement for the brokers to sell the policies, and therefore subject to premium tax.
Crusader dropped the fee in June 1998, and Cheldin thought the matter was history. But beginning in April 1999, the OIC and Crusader had several contentious discussions about the fees, what the company owed and possible penalties.
When the discussions proved fruitless, the OIC issued a press release stating its intent to 1) fine Crusader $307,000; 2) order the company to rebate all of the fees collected since 1995; and 3) suspend Crusader for 120 days. Cheldin termed the OIC’s actions “completely irrational.”
After pleading its case unsuccessfully to an OIC administrative hearing officer last May, Crusader filed a lawsuit against Senn and her office in Thurston County (Wash.) Superior Court, alleging her actions were “arbitrary, capricious and beyond her authority.” Had the case gone to trial Feb. 5 as scheduled, Crusader would have had the support of the National Association of Independent Insurers, which filed an amicus brief. In the interim, attempts by Senn’s staff to reach a compromise with Crusader went nowhere.
“We didn’t feel that those . . . gestures were in good faith,” said Cheldin, who made it clear throughout the process that Crusader would pursue legal relief to the U.S. Supreme Court if necessary. “It would have been very costly for them [the OIC] to fight the lawsuit. And they would have lost.”
The dispute “certainly diminished our impression of our ability to conduct business in Washington in a profitable way,” Cheldin said, adding, “We do feel our reputation has been damaged.”
Officially, Crusader is in good standing with the OIC. Unofficially, there is undoubtedly relief on both sides that the legal fight ended six days before trial.
Topics Agencies Washington
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