Following a year of legal wrangling, Insurance Commissioner Dave Jones announced that the California Department of Insurance has come to a settlement agreement with Berkshire Hathaway subsidiaries to halt the bait and switch marketing tactics used to sell a workers' compensation insurance product, which led to a number of complaints from employers caught up in the costly and complicated policies.

"This is a significant victory in protecting California businesses from sophisticated bait and switch marketing tactics," said Insurance Commissioner Dave Jones.

"We have gone to the limit of our authority over workers' compensation insurance products in winning concessions that eliminate oppressive contract terms, such as the insurer requiring arbitration in the British Virgin Islands. The revised product terms include lower rates, improved disclosures, and limiting sale of the product only to companies that can absorb the substantial risks."

In May 2016, in response to a complaint by a small business owner and after a hearing by an administrative law judge, the commissioner determined California Insurance Company and Applied Underwriters, both subsidiaries of Berkshire Hathaway, were selling a workers' compensation product with illegal side agreements that modified the obligations of the parties under the policy. 

Such agreements, known as Reinsurance Participation Agreements or RPAs, require department review and approval—the Berkshire companies used the agreements without first obtaining the department's approval.

For example, the RPA did not disclose basic premium information, levied hefty penalties for policy cancellation, failed to disclose required binding arbitration outside the U.S., and obfuscated the methodology for calculating premiums, deposits, or other payments due.

Workers' compensation insurance was partially deregulated by the legislature in the1990s—as a result, the insurance commissioner has only limited authority over rates and product features.

The department concluded Applied Underwriters was trying to avoid regulatory oversight, as noted in their U.S. patent application where the company described how its patent purports to evade regulatory oversight and ostensibly allows the company to sell a complicated type of policy to smaller businesses, which most states prohibit. 

Even the revised products are not appropriate for businesses unable to adequately evaluate the pricing, obligations, and risks of such a complex product. 

The department advises any employer considering such a complex product to consult an expert with legal and actuarial expertise in workers' compensation products.