California Insurance Co. Hits Commissioner with Anti-SLAPP Motion

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California Insurance Co. has filed an “Anti-SLAPP” motion the company says is to protect its First Amendment rights in its ongoing legal battle with the California Department of Insurance and Insurance Commissioner Ricardo Lara.

Anti-SLAPP laws (Strategic Lawsuit Against Public Participant) create mechanisms to combat what are considered to be abusive court proceedings. California has a broad Anti-SLAPP statute regarding First Amendment rights.

The motion was filed in Superior Court of California for the County of San Mateo. A hearing date is set for Dec. 3.

The SLAPP lawsuit requires the California Department of Insurance and Lara to demonstrate a probability of prevailing in his application against CIC, for which the CDI and Lara have filed a rehabilitation plan.

“The CDI has told us repeatedly that they are punishing CIC because we dared to defend ourselves in court and prevail,” Jeffrey Silver, CIC’s general counsel, said in a statement. “The CDI intends to unilaterally reverse this and deprive CIC of its First Amendment rights. We entered into a Settlement Agreement with the CDI on June 2, 2017, and agreed that there was a good faith dispute regarding EquityComp, and that the dispute was ultimately for the California courts to decide.”

A CDI spokesman declined to comment, citing a policy against commenting on ongoing litigation.

CDI got approval last year to place CIC in conservatorship and recently CDI filed a follow-up rehabilitation plan that would force CIC to sell its California business to another insurer. This lawsuit seeks to enjoin the state from continuing the conservatorship.

Applied Underwriters, based in Nebraska, argues that it is not a California corporation and thus should not be subject to the conservatorship or any of the proceedings involving CIC. While Applied is no longer formally affiliated with CIC, its income stream and value remained dependent on providing policy and payroll services to CIC policyholders, according to the complaint.

The lawsuit is the latest salvo in a long-running dispute between the insurers and CDI that began last year with Applied Systems founder and CEO Steven Menzies seeking to buy Applied Underwriters from Berkshire Hathaway. After Lara’s office would not approve the sale in a timely manner last fall, Menzies decided to expedite it by redomesticating the subsidiary CIC to New Mexico. Menzies was joined in the $920 million acquisition by the Quasha Group led by Quadrant Management.

California maintained that the deal needed its sign-off because CIC, one of Applied’s subsidiaries at the time, was domiciled in the state.

In addition to delaying a ruling on the sale, CDI also balked at CIC’s move to New Mexico without its consent, threatening to pull CIC’s certificate of authority to do business in California, according to the complaint.

Last November, after the New Mexico move, CDI succeeded in obtaining court approval for a conservatorship for CIC based on a section of law that authorizes conservatorship where an entity, “without first obtaining the consent in writing of the commissioner, has transferred, or attempted to transfer, substantially its entire property or business or, without consent, has entered into any transaction the effect of which is to merge, consolidate, or reinsure substantially its entire property or business in or with the property or business of any other person.”

According to Applied Underwriters, this conservatorship order has caused it significant financial and reputational harm.

The SLAPP lawsuit states the conservation order from the commissioner was not to avert an allegedly improper merger attempt between CIC and CIC II, but instead was motivated by the commissioner’s “desire to intervene in and force the settlement of private litigation between CIC, its affiliates/former affiliates, and policyholders concerning an insurance product, the EquityComp@ program, that CIC previously offered.”

In 2008, CIC took part in the EquityComp program, a loss-sensitive workers’ compensation insurance program offered to California employers that had two relevant components: standard workers’ compensation insurance policies issued by CIC, and a separate profit-sharing arrangement between the EquityComp participant and a third-party captive reinsurer, Applied Underwriters Captive Risk Assurance Company Inc., through a voluntary agreement called the RPA (reinsurance participation agreement).

“It was a classic rent-a-captive program long recognized in California,” the SLAPP lawsuit states.

Despite reviewing the EquityComp program for 10 years without objection, the CDI and then Commissioner Dave Jones issued a decision in the matter of the Appeal of Shasta Linen Supply Inc. in which Jones ruled the RPA was void because it violated California Insurance Code. Following that, the CDI entered into an agreement with CIC and AURA in which it agreed the enforceability of the RPA would be left to the courts to decide.