The California Department of Insurance has reached a settlement agreement with Berkshire Hathaway subsidiaries in the Shasta Linen case. The settlement includes a dismissal of the writ petition filed by the insures and the commissioner’s administrative decision in the Shasta Linen case will continue to stand as a precedent decision.

The company will however continue to sell a revised version of its controversial workers’ compensation insurance policies to California employers. The revised version will contain disclosures about the financial risks of Reinsurance Participation Agreements or RPAs,

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

Commissioner’s regulatory authority over workers’ compensation rates is limited. The rates must be sufficient to make sure the companies remain solvent, The rates cannot tend to create a monopoly in the market. And they cannot be unfairly discriminatory.

Nonetheless, workers’ compensation insurers are required to file their policy forms with the department.  However, the commissioner has very limited authority over product features.

In May 2016, in response to a complaint by Shasta Linen, 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. But the Berkshire companies used the agreements without first obtaining the department’s approval.

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.

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.

The settlement effectively constitutes an acknowledgement that rates and supplementary rate information must be filed with the department consistent with longstanding insurance law. The settlement includes new disclosures that will provide policyholders with key details regarding the product.

However, the CDI claims that 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.

The U.S. Securities and Exchange Commission on Wednesday declined to interpret whether a workers’ compensation policy executed by a Berkshire Hathaway insurance unit can be characterized as a swap, saying its interpretation could influence an ongoing $18 million suit concerning the policies.

The agency declined to issue a joint interpretation with the Commodity Futures Trading Commission as to whether a “reinsurance participation agreement” executed by Applied Underwriters Captive Risk Assurance Company Inc. is a swap, citing a suit filed by delivery service Breakaway Courier Systems.