Illinois Fines Continental Indemnity, Applied Underwriters $250K for Unapproved Sales

Two former Berkshire Hathaway companies have been hit with a $250,000 fine by Illinois regulators for selling unapproved workers’ compensation policies to small businesses.

The Illinois Department of Insurance says Continental Indemnity Company and Applied Underwriters Inc. also overcharged some Illinois small businesses for workers’ comp insurance.

The fine is the result of a market conduct examination conducted by the department in 2019, which found that the companies marketed and sold unapproved workers’ compensation policies, packaged with side agreements, in violation of the law.

Continental Indemnity Company and Applied Underwriters Inc., both subsidiaries of Berkshire Hathaway at the time of the investigation, were selling a workers’ comp product with an unlawful side agreement that changed the obligations of the employer under the policy, the IDOI said.

The companies sold Reinsurance Participation Agreements (RPAs) as part of workers’ comp insurance packages to small businesses without approval from IDOI. The department found that the companies’ packaging of RPAs with workers’ comp insurance misled policyholders into assuming all of the risk, effectively insuring themselves, and resulted in policyholders paying more for the reinsurance part of the package than for the workers’ comp policy itself.

Furthermore, the RPAs lacked standard information about premium amounts, used complex and confusing calculations for costs, including deposits and premiums due, charged penalties for cancellations and required arbitration for policyholders to free themselves from the agreement.

The exam also cited an instance of Continental Indemnity Company’s failure to follow underwriting guidelines with a standard workers’ comp policy which resulted in a premium overcharge of $8,310.09.

“Small business owners who follow the rules and purchase workers’ comp insurance to protect their employees should not be overcharged in a complex scheme that mislabels a side agreement as insurance,” IDOI Director Robert Muriel said in a media release. “Continental Indemnity and Applied Underwriters sought to side-step regulatory oversight, and this fine serves as notice to companies that we’re here to protect Illinois’ small businesses and properly regulate insurance products sold in this state.”

Continental Indemnity Company and Applied Underwriters are no longer selling the RPAs in Illinois, and as part of the settlement the companies agreed to file any new insurance products and rates with IDOI.

The companies also paid fines for selling similar products in other states, including California, New Jersey and New York.

This article was first published in Insurance Journal.

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