There were other troubling facets of the plans, Jones said: Applied imposed steep fees on customers that canceled early or decided not to renew, and it had the right to hold excess payments from customers for as many as seven years after a policy ended.
“This is a case of, ‘If it sounds too good to be true, it probably is,’” Jones said in a statement.
Wisconsin, Vermont
The commissioner noted that two other state regulators had already prohibited some of Applied’s products. Last year, Wisconsin ordered the company to stop renewing and selling plans with reinsurance participation agreements. The regulator then fined the insurer $140,000 when it failed to comply. This year, Vermont’s Department of Financial Regulation announced that between 2007 and 2015, Applied had overcharged dozens of small businesses. The insurer agreed to rebate $352,000 to customers and pay a $300,000 fine, one of the largest levied by the regulator against an insurer since 2009.
Other states are weighing in. Virginia’s regulator says it’s reviewing actions by regulators and whether Applied is complying with the law. Officials in Minnesota said this week that they’re looking into Applied’s reinsurance participation agreement. Maryland’s regulator sided with Applied, saying the company doesn’t need to file the contracts.
Jones’s rebuke provided fodder for attorneys pursuing cases against the insurer. In September, New York bike-messenger service Breakaway Courier Corp. drew on Jones’s decision in a lawsuit that accused Applied and Berkshire of siphoning premiums for their own benefit. Silver called the case frivolous.
Applied agreed to stop selling the plans in California but countered in a court filing in July. It said the commissioner and administrative law judge presiding over the Shasta case “acted in excess of their powers” and didn’t give the company a fair trial. The insurer argued its coverage fell into a category of plans that aren’t subject to rate and filing requirements and that the regulator hadn’t raised any objections about the plans during multiple examinations.
Applied also said Shasta willingly signed up for the plan, and its president was an experienced lawyer who had the help of an independent broker. It added that the profit-sharing plan would have saved Shasta money over its fixed-cost policy had the employer continued to pay bills.
Support Letters
Silver, the Applied lawyer, said most employers are happy with the company’s products. To prove his point, he provided five letters sent this year to California’s insurance commissioner by brokers and one customer, the San Francisco Opera, urging that the policies continue to be made available. What wasn’t mentioned: One broker, Carl DeBarbrie, is a former Applied executive. Menzies is vice chairman of the opera’s board.