Applied didn’t file this second contract, which it called a “reinsurance participation agreement,” with regulators. The company would later say in court filings that was because the document, despite its name, wasn’t technically insurance and didn’t alter the terms or obligations of the filed policy. “Our position is it’s part of a reinsurance transaction that doesn’t need to be filed,” Silver said.
James Moore, a workers’ comp consultant with more than two decades of experience, remembers analyzing some of Applied’s plans for clients around 2009 to see whether their bills were accurate. At first, he said, he was “baffled” and had to spend hours sorting out the calculations, which turned out to be correct. “The normal business owner never would have been able to figure it out.”
Driving Factor
Anthony Will was the kind of business owner Applied hoped to reach with its new product. His firm, West Coast Welding Inc., specialized in driving piles into the ground for bridge foundations. It’s dangerous work that insurers charge a lot to cover, but Will thought he and his co-owners could run a safe operation and save money.
The Pleasant Hill, California-based company, which had about 15 employees at the time but could scale up to 40, got a quote from Applied in 2007 that showed its cost under the plan would be at least $458,412 for three years and wouldn’t exceed $819,993. Will said the plan looked competitive with those of other carriers. He also liked Applied’s ties to Berkshire.
“That was one of the big, driving factors,” Will said. “You’re not dealing with Fred & Tom’s insurance, which will be out of business tomorrow.”
Things didn’t work out as he hoped. At the end of the contract, Will figured his business should get back about $100,000 because he only had a few thousand dollars in claims. More than six years later, he’s still waiting for a check. He sued in February. Applied tried to move the dispute into arbitration, but a judge blocked the transfer. Applied is appealing.
“We agreed that they’re entitled to some final distribution,” Silver, Applied’s lawyer, said. “We don’t think it’s $100,000, and we believe it’s far from that.”
Marketing Push
The insurer marketed its policies to independent brokers through an internal sales force. Applied’s managers tracked performance closely, according to former employees who asked not to be identified for fear of retaliation. These people said the profit-sharing plans were very complex and could be a bad deal for customers, in part because of harsh cancellation terms -- a characterization echoed this year by California’s insurance regulator. Silver said the cancellation penalties are actuarially determined and no worse than similar policies.