The California Department of Insurance initiated an administrative enforcement action against two insurers – Zurich American Insurance Co. and Zurich American Insurance Co. of Illinois – for using a type of workers’ compensation insurance agreement known as a “large deductible agreement” without obtaining review of the agreement by the department, it was announced on Tuesday.
Obtaining review of such agreements is required by the California Insurance Code. The unreviewed agreements have been the subject of litigation between the Zurich companies and employers because they include a requirement for arbitration of disputes in Illinois, where the Zurich companies are located.
The California Insurance Code requires the submission of workers’ compensation insurance policy forms and endorsements for review to the department and to the Workers’ Compensation Insurance Rating Bureau of California.
Zurich spokesman Steve McKay said the company is currently evaluating the filing.
“We are currently reviewing the enforcement action and will look to resolve with the department any concerns contained therein,” McKay said.
The large deductible agreements issued by Zurich contain fundamental policy terms regarding payment, expenses, collateral, default, arbitration, choice of law and other matters, according to CDI.
Despite having key terms, the Zurich companies did not submit the agreements for review, and California law provides that policies that are not submitted shall not be issued, CDI states.
The department’s action seeks an order requiring Zurich to cease issuing agreements that have not been filed for review, and if Zurich fail to do so, they could be suspended or barred from transacting further business in California, according to CDI.
The action also seeks an order that large deductible agreements that Zurich issued may not be enforced by Zurich.
“Whatever the insurers’ motive, the effect of evading the Department’s review is that Zurich will not be permitted to enforce the agreements,” CDI General Counsel Adam Cole said in a statement. “Workers’ compensation policies are critical to California employers and employees, and the Department will not permit insurers to issue policies or endorsements that we have not assured are in compliance with California law.”
Topics California Workers' Compensation
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