California Department Of Insurance Files Action Against Workers' Compensation Insurers Using Illegal Agreements
News: 2012 Press Release
The California Department of Insurance today announced the commencement of an administrative enforcement action against two insurers, Zurich American Insurance Company and Zurich American Insurance Company of Illinois, for using a type of workers' compensation insurance agreement known as a "large deductible agreement" without obtaining review of the agreement by the Department, as required by the California Insurance Code. The unreviewed agreements have been the subject of litigation between the Zurich companies and employers because they include a requirement for arbitration of disputes in Illinois, where the Zurich companies are located.
The California Insurance Code requires the submission of workers' compensation insurance policy forms and endorsements to the Department and to the Workers' Compensation Insurance Rating Bureau of California, for review, to ensure they comply with California law. The large deductible agreements issued by the Zurich companies contain fundamental policy terms regarding payment, expenses, collateral, default, arbitration, choice of law and other matters. Despite having key terms, the Zurich companies did not submit the agreements for review. California law provides that policies that are not submitted shall not be issued. The Department's action seeks an order requiring the Zurich companies to immediately cease issuing agreements that have not been filed for review. If the Zurich companies violate such an order, they could be suspended or barred from transacting further business in California. Further, the action seeks an order that large deductible agreements that the Zurich companies issued in disregard of the Insurance Code may not be enforced by Zurich.
"Whatever the insurers' motive, the effect of evading the Department's review is that Zurich will not be permitted to enforce the agreements," said the Department's General Counsel, Adam Cole. "Workers' compensation policies are critical to California employers and employees, and the Department will not permit insurers to issue policies or endorsements that we have not assured are in compliance with California law."
The order regarding the action against Zurich is available to the public.
The California Department of Insurance, established in 1868, is the largest consumer protection agency in California, regulating the $123 billion insurance marketplace. In 2013 the California Department of Insurance received more than 170,000 calls from consumers and helped recover over $63 million in claims and premiums. Please visit the Department of Insurance web site at www.insurance.ca.gov. Non-media inquiries should be directed to the Consumer Hotline at 800.927.HELP or 213.897.8921. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.