David Miller is a stickler for safety at the Goodwill stores he runs in central California. So when Applied Underwriters offered his nonprofit a deal on insurance for workplace accidents if he could minimize injuries, he jumped at the opportunity. Even better, Applied was part of Berkshire Hathaway Inc., the firm controlled by Warren Buffett.

These days, he wishes he hadn’t. The contracts Miller signed have turned into a burden for his organization. It paid $1.8 million to cover about 350 employees, many disabled or disadvantaged at 17 locations from Lodi to Visalia. When the nonprofit switched carriers last year, Applied demanded hundreds of thousands of dollars more to fund remaining claims.

“I’m trying to make money in my stores to help people,” said Miller, chief executive officer of Goodwill Industries of San Joaquin Valley. “Instead, I’m writing big checks to an insurance company that I probably don’t even owe.”

Miller’s nonprofit is one of dozens of employers -- from a bike-courier service in Manhattan to a linen-supply company in Sacramento -- that have sued Applied for deceptive practices. The businesses allege the insurer peddled products regulators hadn’t approved. They complain about being surprised by large bills based on formulas that stacked the deck in the insurer’s favor. California, Vermont and Wisconsin have banned some Applied plans.

‘Innovative Product’

The insurer says that its products save employers money and that customers were aware of the terms. Companies that are litigating account for only about one in 400 policies sold, said Jeffrey Silver, Applied’s lawyer. The plans didn’t work out in their favor because they had claims that caused costs to go up, he said. They’re now “taking advantage of a regulatory situation” to avoid paying what they owe. About 90 percent of employers renew, Silver said.

The Berkshire subsidiary agreed to orders by regulators in California, Vermont and Wisconsin to halt some of its sales. But the company continues to press its case in California, its largest market, where it has asked a state court judge to  overturn the insurance commissioner’s decision that its plans were illegal.

“It’s an innovative product,” Silver said. “And sometimes when you have an innovative product, regulators take a while to catch up to it. And that’s exactly what we think is happening here.”

As courts weigh these quarrels, this much is clear: It’s a lot of hot water for one of Buffett’s companies. The billionaire, who didn’t respond to requests for comment, tells Berkshire managers that “there’s plenty of money to be made in the center of the court.” In other words, no need to get close to the line, legally or ethically, to make some extra bucks.

Yet Applied has done just that, according to court filings, public records and interviews with more than two dozen business owners, brokers, consultants, attorneys, regulators and former employees of the insurer. Together, they describe a company that profits by enticing employers to make a financial gamble, even though some say they didn’t fully understand the rules.

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