Sacramento, CA (WorkersCompensation.com) - On Monday, November 4, the San Mateo County Superior Court issued an order appointing the California Department of Insurance's Conservation and Liquidation Office as conservator of California Insurance Company (CIC) and directing the conservator to take immediate possession of the workers' compensation insurer in response to the company's willful violation of state law and established pattern of continually flouting California's regulatory processes.
The Department of Insurance sought the order after company officials unilaterally and illegally attempted to merge its business with a New Mexico-based insurer without first securing the Department's prior approval.
The order also blocks the attempted merger, which seeks to divest California of its regulatory oversight over this entity. If CIC is permitted to consummate this illegal transfer, CIC employer policyholders, employees with serious work-related injuries and other claimants entitled to vital and necessary insurance benefits, will be left holding policies of a non-admitted insurer not qualified to transact insurance in California.
Effective immediately, the Department of Insurance's Conservation and Liquidation Office will serve as conservator to protect the company's existing policyholders and covered workers from an insurer attempting to operate without the approval and authority to continue to transact insurance in California.
The conservator will, to the fullest extent of the law, ensure that California Insurance Company policyholders remain covered under their existing policies and retain the full protections provided to them under California law.
This action follows an established pattern and practice by company officials of illegal actions, misrepresentations, and willful disregard for the authority of the Department of Insurance and other states' regulators:
In 2016, the Department of Insurance issued a precedential decision In the Matter of the Appeal of Shasta Linen Supply, Inc. stating that California Insurance Company (CIC) “created a product to circumvent California's statutory and regulatory requirement; a product that ultimately enriched CIC at the expense of California employers.”
The Department subsequently served California Insurance Company officials with a Cease and Desist Order for selling unapproved workers' compensation policies to unsuspecting business owners in what amounted to a “bait and switch” scheme.
Other states including Vermont, Wisconsin, New York, and New Jersey have also taken regulatory actions against the same company officials' affiliated companies for engaging in similar unapproved transactions within those states.
While the Department of Insurance was in the process of reviewing the company's application for sale, on October 9, with less than 48 hours' notice to California, company officials attempted to transfer the ownership of California-domiciled California Insurance Company to a New Mexico entity called “California Insurance Company II.”
California law is unequivocal in giving the Department of Insurance the responsibility and power to review transactions of California-based insurers in order to protect policyholders and the public. No company can evade this authority if it wants to sell insurance in this state.