Applied Underwriters, Inc. and Applied Risk Services, Inc. filed a lawsuit against the Insurance Commissioner of the State of California and others in U.S. District Court for the Eastern District of California, asserting five claims under the U.S. Constitution.

Applied and its affiliates primarily write workers’ compensation insurance through multiple insurance companies in all fifty states in the United States,and have done so since 2002. California Insurance Company (“CIC”) is the largest of those companies and was formed in 2004. Since that time, CIC has grown into a company with over a billion dollars in assets and over $600 million in capital and surplus.

Applied Underwriters and Applied Risk Services allege that the California Department of Insurance acted in bad faith and abused its authority under state law in ways that have caused substantial harm to the companies.

Disputes between the CDI and Applied Underwriters has a longstanding history. The current dispute arose in January 2019, after a $920 million sale to company founder Steve Menzies, who was an indirect owner of 11.5% of CIC’s shares was announced.

The California Department of Insurance says it must sign off on the deal because one of Applied’s subsidiaries, California Insurance Co., is domiciled in the state. It subsequently denied approval of the sale.

The California Department of Insurance placed California Insurance Company into a conservatorship, allegedly under false pretenses and has abused its authority by trying to force Applied Underwriters to relinquish its rights in connection with the Department’s unlawful actions.

In the year long period that CIC has been in conservation, Applied Underwriters claims the CDI has “refused to resolve matters in good faith,” and has instead demanded that Applied “subject itself to jurisdiction, give up its right to bring this and other lawsuits, and bind itself to other onerous terms.”

The complaint says that up until this week, Insurance Commissioner Lara and his representatives continued to “propose unfair and preposterous terms under the constant threat that if Applied and others did not agree, they would seek court approval for a rehabilitation plan that would be ‘even worse.’”

That rehabilitation plan, originally due in August, was filed October 19.

According to Applied Underwriters, the rehabilitation plan “effectively eliminates CIC’s business in California, and other states, requires CIC to transfer its business to a new insurer of the Commissioner’s choosing, and leaves just a shell CIC with all of its obligations to other reinsurers and affiliates under its contracts and no source of revenue to meet its obligations.”