California starts action against Zurich American

SACRAMENTO
February 28, 2012 12:03pm

The California Department of Insurance says two insurers, Zurich American Insurance Company and Zurich American Insurance Company of Illinois, have been using a type of workers’ compensation insurance agreement known as a “large deductible agreement” without obtaining review of the agreement by the Department, violating the law.

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, says the department.

“We are currently reviewing the enforcement action and will look to resolve with the Department any concerns contained therein,” says Steve McKay, media and public relations director for Zurich American Insurance Company.

The California Insurance Code requires the submission of workers’ compensation insurance policy forms and endorsements to the Department of Insurance 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, the DIR says.

But despite having key terms, the Zurich companies did not submit the agreements for review, the state says.

California law provides that policies that are not submitted shall not be issued.

The action Tuesday by the Department of Insurance seeks a court 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, the DIR says.

“Whatever the insurers’ motive, the effect of evading the Department’s review is that Zurich will not be permitted to enforce the agreements,” says Adam Cole, general counsel for the DIR. “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.”