United States District Court, E.D. California
SHASTA LINEN SUPPLY, INC., a California corporation, on behalf of itself and all those similarly situated, Plaintiff,
APPLIED UNDERWRITERS, INC., a Nebraska corporation; APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, a British Virgin Islands company; CALIFORNIA INSURANCE COMPANY, a registered California insurance company; APPLIED RISK SERVICES, INC., a Nebraska corporation, Defendants.
ORDER RE: MOTION TO DISMISS
WILLIAM B.SHUBB UNITED STATES DISTRICT JUDGE
Shasta Linen Supply, Inc. filed this putative class action
alleging claims for fraud and unfair competition against
defendants Applied Underwriters, Inc. ("AU"),
Applied Underwriters Captive Risk Assurance Company, Inc.
("AUCRA"), Applied Risk Services, Inc.
("ARS"), and California Insurance Company, Inc.
("CIC"), and seeking to represent a class of
California employers who purchased an EquityComp workers'
compensation insurance program from defendants. (See First Am.
Compl. ("FAC") (Docket No. 5).)
alleges that, in 2009, defendants marketed the EquityComp
program to plaintiff and provided an estimate that
plaintiff's annual cost for the program would be between
$107, 541 and $368, 457. (Id. ¶¶ 22-23.)
Based on defendants' marketing materials, plaintiff
entered into the EquityComp program and was issued a
workers' compensation insurance policy that became
effective on January 1, 2010. (Id. ¶¶ 2,
24.) Then, on January 5, 2010, defendants allegedly required
plaintiff to execute a Reinsurance Participation Agreement
("RPA"), which modified the existing policy's
rates, payment obligations, choice of law, and dispute
resolution mechanism. (Id. ¶ 24, Ex. 1
alleges that it incurred significantly higher costs for the
EquityComp program than defendants had marketed. Plaintiff
claims that defendants used the RPA to charge excessive rates
and additional fees to plaintiff and other program
participants. Plaintiff also alleges that defendants
deliberately misrepresented the costs of the EquityComp
program in their marketing materials to induce plaintiff to
rely on those costs and enter the program. (Id.
¶¶ 30-32, 55-64.)
also alleges that the RPA modified the terms of the existing
insurance policies under the EquityComp program by
"control[ling] the insurance rates for each program
participant." (FAC ¶ 27; see Id. ¶ 46
(alleging that "the RPA controlled the rates paid by
Plaintiff" under the existing policy).) Plaintiff also
alleges that defendants, through the RPA, unlawfully charged
plaintiff and the putative class "excessive rates."
(Id. ¶ 59.) Plaintiff claims that the RPA's
rates are void because, among other things, defendant did not
file the rates with the Insurance Commissioner as required by
California Insurance Code § 11735. (Id. ¶
state that their motion to dismiss is "narrowly tailored
to attack Plaintiff's claims to the extent that they seek
to invalidate the RPA's rates on the theory that [the
RPA] is an unfiled rate plan" pursuant to § 11735.
(Defs.' Reply at 7 (Docket No. 26).) They argue that,
"[t]o the extent Plaintiff's claims seek to void the
RPA's payment obligations on the ground that it has not
been filed, those claims for relief must be dismissed because
. . . an unfiled rate is not an unlawful rate."
(Id. at 1.)
Workers' Compensation Act, Cal. Lab. Code § 3200 et
seq., requires most employers to buy workers'
compensation insurance as a condition of doing business in
California. See Cal. Lab. Code § 3700. The Legislature
has granted broad authority to the California Department of
Insurance ("CDI"), its Commissioner, and the
Workers' Compensation Insurance Rating Bureau of
California ("WCIRB") to regulate workers'
compensation insurance programs that are provided to
employers. See Cal. Ins. Code §§ 11750.3, 11751,
11735 requires every insurer to "file with the
commissioner all rates, rating plans, and supplementary rate
information that are to be used" by the insurer at least
30 days before their effective date. Cal. Ins. Code §
11735(a). Section 11737 additionally provides that
"[t]he commissioner may disapprove a rate if the insurer
fails to comply with the filing requirements under Section
11735." Id. § 11737(a). As defendants
correctly point out, the use of a rate that has not been
filed as required by § 11735 is not an unlawful rate
unless and until the Commissioner conducts a hearing and
disapproves the rate. See Id. § 11737; Cal.
Code Regs. tit. 10, § 2509.33(c) ("A disapproval of
a rate filing . . . shall occur only by order of the
Commissioner after a hearing.").
Complaint does not contain any allegations that the
Commissioner had conducted a hearing and disapproved the
RPA's rates. Plaintiff thus fails to state a claim that
the RPA's rates are void based on defendants' alleged
failure to comply with § 11735. Accordingly, the court
will grant defendants' motion to dismiss plaintiff's
claims to the extent they seek to void the RPA's rates on
the theory that defendants failed to comply with §
11735. Plaintiff's UCL and fraud claims, however, are not
limited to the grounds that defendants challenge
here. Thus, in all other respects,
defendants' motion will be denied.
THEREFORE ORDERED that defendants' motion to dismiss
plaintiff's First Amended Complaint, (Docket No. 17), be,
and the same hereby is GRANTED to the extent that plaintiff
seeks to invalidate the Reinsurance Participation Agreement
on the theory that defendants violated California Insurance
Code § 11735; and DENIED in all other respects.
 AU is an indirect subsidiary of
Berkshire Hathaway, Inc. and is the parent company of AUCRA
and ARS. AU is also the parent company of North American
Casualty Company, ...