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Judge blocks merger of Applied Underwriters’ subsidiary

A San Mateo Superior Court judge issued an order Monday blocking the merger of California Insurance Co. with California Insurance Co. II — domiciled in New Mexico — which has been at the crux of the Applied Underwriters Inc. sale.

The judge’s order appointed the California Department of Insurance’s office as conservator of Applied Underwriters’ subsidiary, California Insurance Co., which is domiciled in California, and directed CDI’s Conservation and Liquidation Office “to take immediate possession” of the workers compensation insurer in response to the company’s “willful violation of state law and established pattern of continually flouting California’s regulatory processes,” said the CDI in a statement Tuesday.

In mid-October, Omaha, Nebraska-based Applied Underwriters Inc. announced that it was being acquired by founder and President Steve Menzies and a New York private equity investment firm from Berkshire Hathaway Inc., which had owned the company since 2005, in a $920 million deal. 

About two weeks prior to that announcement, the New Mexico Department of Insurance  department received an application for the formation of California Insurance Co. II, proposing to merge the California-based CIC into a newly formed New Mexico-domiciled insurer, according to New Mexico’s Office of the Superintendent of Insurance.

CDI had neither approved nor denied the sale prior to that point, and said it was given less than 48 hours to review the CIC merger with CIC II in New Mexico.

CIC’s general counsel, Jeffrey Silver, said in an email Tuesday afternoon that CDI engaged in “eight months of dawdling” and ignored Applied Underwriters’ requests that the department make a determination on its application regarding the sale of the company, and failed to object to the merger of CIC with CIC II in New Mexico during an Oct. 9 conference call.

CDI said in a statement that Applied Underwriters “illegally” attempted to merge without securing approval from California, and that the actions of CIC — which has $185 million in written premiums in the state — would leave policyholders and employees with work-related injuries “holding policies of a non-admitted insurer not qualified to transact insurance in California.”

CDI acted with “unprecedented, unnecessary regulatory overreach” that may constitute tortious interference,” said Mr. Silver. “We are considering our options for an immediate response.”