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California Insurance Company challenges takeover by regulator in federal court

Legal office of lawyers, justice and law concept : Wooden judge gavel or a wood hammer and a soundboard used by a judge person on a desk in a courtroom with a blurred brass scale of justice behind.

A unit of Applied Underwriters has sued the California Department of Insurance (CDI) in a bid to overturn the regulator’s decision to place the carrier in conservatorship.

In a statement on Thursday, California Insurance Company (CIC) said also that it was seeking to stop the state regulator from halting the attempted re-domestication of the company to New Mexico.

The legal challenge comes after the CDI in November 2019 obtained a court order allowing it to seize the workers’ compensation insurer, in response to the attempted sale of the entity.

CDI accused CIC of “continually flouting” the Golden State’s regulatory process, and sought to block a deal that would see it merge with an insurer in New Mexico.

The lawsuit names CDI commissioner Ricardo Lara, deputy commissioner Kenneth Schnoll and deputy commissioner Bryant Henley, and alleges violation of multiple clauses of the US constitution. It is filed in federal court in the eastern district of California.

“CIC charges the Insurance Commissioner and the other officials named with ‘unlawful’ and ‘bad faith’ action in imposing an arbitrary, illogical and illegal conservatorship of CIC to obstruct its New Mexico re-domestication, after that move was approved by several states,” the company said.

According to CIC, the state regulator has required that the workers’ compensation insurer to reinsure its entire book of California business to an unaffiliated competitor, and forced the company to settle more than 40 separate civil legal proceedings.

In October 2019, the CDI blocked the $920mn sale of Applied Underwriters by Berkshire Hathaway to former founder Steve Menzies.

Commenting on the lawsuit, CIC general counsel Jeffrey Silver said: “The outright irrational, illegal maneuvers of the current CDI are without parallel and have deep implications for all insurers and businesses in the state.”

“The remarkable groundswell of support that we have received, in our battles with the CDI, even among insurance license holders usually fearful of the CDI's wrath, demonstrates the depth of outrage over this latest power grab by CDI, following the same group's continuing effort to injure the State Compensation Fund over a rate battle,” he added.

CDI did not immediately respond to a request for comment.

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