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Fraud in Federal Employment Law Case Supports Terminating Sanction

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Cathie Konyen was employed by Lowe’s Home Centers, LLC, and held various positions in its stores located in Reno, Nevada, San Jose, California, and Newburgh, New York, over a period spanning at least thirteen years. She alleged in a Federal District Court case pending in a Nevada that Defendant Lowe’s Home Centers, LLC, violated her rights under the Americans With Disabilities Act of 1990, 42 U.S.C. § 12101, et seq. (“ADA”) and corresponding state laws by discriminating against her and retaliating against her on the basis of her disability.

Konyen worked in Lowe’s Reno store as an Installed Sales Coordinator from March 2014 to January 2016. In April 2015, Konyen experienced back pain and sought treatment. She was given temporary work restrictions, which Lowe’s accommodated.

In January 2016, Cathie Konyen’s husband, Gary Konyen, who was also employed by Lowe’s, was transferred to Lowe’s East San Jose, California store. Cathie and Gary moved to San Jose, and Cathie was hired as an Installed Sales Coordinator in Lowe’s South San Jose store. In February 2016, Cathie Konyen sought medical care in San Jose. She completed accommodations paperwork and received accommodations lasting one year in the San Jose store.

In April 2018, Cathie Konyen moved with her husband to New York, and Cathie Konyen was hired as an Appliance Sales Specialist at Lowe’s New York store. Cathie Konyen sought accommodations again. Lowe’s granted Cathie Konyen workplace accommodations from at least December 2018 through April 11, 2019.

After receiving the 2019 Accommodation Forms, Lowe’s employees reviewed Cathie Konyen’s restrictions and the Flooring Sales Specialist position requirements and determined that Cathie Konyen would be unable to do half of the key responsibilities of the position and that Lowe’s would be unable to meet her scheduling needs. However, they could meet her accommodations in other store positions at a lower pay. Cathie Konyen failed to decide if she would take these positions, so was placed on leave.

On June 21, 2019, Cathie Konyen began a new position at a different company. She applied for this position while she was still employed at Lowe’s and when she had not yet been placed on leave.

Cathie Konyen dual-filed a charge of discrimination with the Equal Employment Opportunity Commission and the Nevada Equal Rights Commission on February 3, 2020. Cathie Konyen filed this federal Complaint in December 2022. In her Complaint, she alleges three categories of claims: (1) disability discrimination in violation of the ADA and state law, (2) retaliation in violation of the ADA and state law, and (3) a breach of state contract law.

Substantial evidence obtained during discovery indicated that Cathie Konyen’s husband Gary forged the 2019 Accommodation forms provided to Lowe’s, and that Cathie Konyen knew about this forgery. Gary invoked the Fifth Amendment and refused to answer any deposition questions.

Defendant moved for terminating sanctions, and summary judgment as to each of Plaintiff’s claims. The Court found that Plaintiff knowingly submitted fraudulent documentation to Defendant in 2019, and this documentation is the basis for her EEOC Charge and the claims in her Complaint. Accordingly, the Court found that Cathie Konyen had engaged in willful deception and bad faith conduct.

When a party has engaged deliberately in deceptive practices that undermine the integrity of judicial proceedings, dismissal is an available sanction because “courts have inherent power to dismiss an action when a party has willfully deceived the court and engaged in conduct utterly inconsistent with the orderly administration of justice.” See Leon v. IDX Sys. Corp., 464 F.3d 951, 958 (9th Cir. 2006) (citing Anheuser-Busch, Inc. v. Nat. Beverage Distributors, 69 F.3d 337, 348 (9th Cir. 1995)). (NOTE that both of these 9th Circuit decisions are controlling law here in California.)

Defendant’s motion for terminating sanctions and summary judgment was granted as to terminating sanctions, and summary judgment is granted in the alternative, in the case of Konyen v Lowe’s Home Centers, LLC, Case No. 3:22-cv-00538-MMD-CLB – United States District Court District of Nevada (July 2025)

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Vizient Projects Cost Pressures Across Healthcare Supply Chain

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Vizient® released its Summer 2025 Spend Management Outlook forecasting a 3.35% increase in pharmaceutical prices in 2026 with healthcare providers seeing increased usage in GLP-1 therapies, specialty medications and high-cost cell and gene therapies. Supply chain prices in products, materials and services are projected to rise 2.41%, led by IT services, capital equipment and surgical supplies. Read the Summer 2025 Spend Management Outlook.

CAR-T therapies and GLP-1s reshape pharmacy market dynamics

An analysis of the Vizient Clinical Data Base shows specialty therapies – particularly CAR-T cellular therapies – emerge as one of the dominant drivers of inpatient drug spend across all acquisition channels. These treatments, such as Carvykti® manufactured by Janssen Biotech, a subsidiary of Johnson & Johnson and Yescarta®, manufactured by Kite Pharma, a Gilead Sciences company, are used for complex conditions such as hematologic cancers.

“These emerging therapeutic technologies are typically obtained through direct-from-manufacturer purchasing models rather than traditional wholesale distribution, which puts additional cost and operational pressures on healthcare organizations and clinical teams,” said Carina Dolan, associate vice president, clinical oncology, pharmacoeconomics & market insights, Vizient. “Health systems must be equipped not only to deliver these therapies, but also to manage their financial impact and navigate the complex acquisition and reimbursement processes associated with them.”

Spend for GLP-1 tirzepatide (Mounjaro® and Zepbound™), both manufactured by Eli Lilly and Company, surged by 167% in 2024 compared to 2023 among Vizient pharmacy program participants, with GLP-1 agents ranking seventh and eighth in total Vizient-tracked wholesaler pharmacy spend. As these therapies help reduce obesity-related conditions, hospitals may see a decline in certain associated procedures, including those for hernias, pressure-related wounds and soft tissue complications. At the same time, providers must prepare for potential increases in surgeries linked to medication side effects, such as cholecystectomies or procedures addressing gastrointestinal complications.

Immune globulin surpasses Humira® amid rising autoimmune treatment costs

Autoimmune and inflammatory therapies have overtaken oncology as the top therapeutic class for the first time, now accounting for 24.83% of total wholesaler-based pharmacy spend among Vizient program participants. Immune globulin is now the number one drug by spend, with a 22% increase since January, driven by expanding use in pediatric and chronic disease segments.

Humira® (manufactured by AbbVie Inc.), a longstanding leader in total Vizient pharmacy spend, has declined 7.6% since January to No. 2 in total Vizient pharmacy program spend due to the increase in biosimilar competition.

Indirect spend category and capital equipment lead supply chain inflation

Indirect spend, encompassing non-clinical goods and services such as security, food services, information technology and construction, accounts for approximately 20-25% of a hospital’s total expenses and is expected to rise 3.34%, driven by IT services prices, projected to rise 5.5% and prices for non-medical capital equipment for purchases such as HVAC and furniture, projected to rise 4.17%.

Rising labor costs, diseases impacting poultry, cattle and produce and weather-related events, such as drought in the Midwest leading to reduced cattle herds, are driving cost pressures across key food categories—contributing to supply instability and continued pricing volatility. Food prices are projected to increase by 3.31%.

“These changes will significantly impact procurement strategies for health systems in the coming year,” said Jeff King, research and intelligence director, Vizient.

Additional areas of focus include:

– – Medical capital equipment—Molecular imaging and nuclear medicine emerged as a newly tracked capital spend category, reflecting growing investment in precision diagnostics and theranostics, therapies that combine therapeutic and diagnostic radiopharmaceuticals, across health systems.
– – Surgical supplies—Prices for surgical supplies are projected to rise 3.28%, driven in part by increases in raw material prices, manufacturing labor costs and fluctuating freight expenses.
– – Physician preference items—This category, including cardiology, surgical services and orthopedic devices, continues to show high variability, underscoring the need for greater standardization and strategic sourcing strategies.

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Alzheimer’s Association Now Favors Blood Tests for Diagnosis

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In a landmark step toward transforming Alzheimer’s disease diagnosis in specialty care, the Alzheimer’s Association released its first clinical practice guideline (CPG) on the use of blood-based biomarker (BBM) tests. The guideline is being reported at the Alzheimer’s Association International Conference® 2025 (AAIC®) in Toronto and online, and published in Alzheimer’s & Dementia®: The Journal of the Alzheimer’s Association.

The CPG provides clear evidence-based, brand-agnostic recommendations to support more accurate and accessible diagnosis of Alzheimer’s using blood-based biomarker tests. The recommendations are linked to a systematic review using a robust and transparent methodology, and will be updated regularly as evidence evolves.

“This is a pivotal moment in Alzheimer’s care,” said Maria C. Carrillo, Ph.D., Alzheimer’s Association chief science officer and medical affairs lead, and a co-author of the guideline. “For the first time, we have a rigorously evidence-based guideline that empowers clinicians to use blood biomarker tests confidently and consistently. Adoption of these recommendations will lead to quicker, more accessible, more accurate diagnoses — and better outcomes for individuals and families affected by Alzheimer’s.”

The recommendations in the new CPG — both of which apply only to patients with cognitive impairment being seen in specialized care for memory disorders — are:

– – BBM tests with ≥90% sensitivity and ≥75% specificity can be used as a triaging test, in which a negative result rules out Alzheimer’s pathology with high probability. A positive result should also be confirmed with another method, such as a cerebral spinal fluid (CSF) or amyloid positron emission tomography (PET) test.
– – BBM tests with ≥90% for both sensitivity and specificity can serve as a substitute for PET amyloid imaging or CSF Alzheimer’s biomarker testing.

The guideline cautions that there is significant variability in diagnostic test accuracy and many commercially available BBM tests do not meet these thresholds.

“Not all BBM tests have been validated to the same standard or tested broadly across patient populations and clinical settings, yet patients and clinicians may assume these tests are interchangeable,” said Rebecca M. Edelmayer, Ph.D., Alzheimer’s Association vice president of scientific engagement and a co-author of the guideline. “This guideline helps clinicians apply these tools responsibly, avoid overuse or inappropriate use, and ensure that patients have access to the latest scientific advancements.”

Compared to standard-of-care PET imaging and CSF tests, blood-based biomarkers are typically less costly, more accessible and more acceptable to patients. The guideline emphasizes that BBM tests do not substitute for a comprehensive clinical evaluation by a health care professional, and should be ordered and interpreted by a health care professional in the context of clinical care.

This is the first evidence-based guideline using Grading of Recommendations Assessment, Development and Evaluation (GRADE) methodology in the Alzheimer’s space. The use of GRADE ensures a transparent, structured and evidence-based process for evaluating the certainty of evidence and formulating recommendations. This strengthens the credibility and reproducibility of the guideline and allows for explicit linkage between evidence and recommendations.

A panel of 11 clinicians convened by the Alzheimer’s Association — including clinical neurologists, geriatricians, nurse practitioners, physician assistants and subject-matter experts — conducted a systematic review and formulated evidence-based recommendations for using blood-based biomarkers in individuals with objective cognitive impairment, including those with mild cognitive impairment (MCI) or dementia. Final recommendations were informed by public comments and input from the Association’s National Early-Stage Advisory Group, which includes people living with early-stage Alzheimer’s.

For this initial iteration of the guideline, the BBMs included plasma phosphorylated-tau (p-tau) and amyloid-beta (Aβ) tests measuring the following analytes: p-tau217, ratio of p-tau217 to non-p-tau217 ×100 (%p-tau217), p-tau181, p-tau231, and ratio of Aβ42 to Aβ40. The various BBM tests measure abnormal forms of either amyloid beta or tau protein, the two biomarkers associated with Alzheimer’s disease. Forty-nine (49) observational studies were reviewed and 31 BBM tests were evaluated.

The panel formulated two recommendations and one Good Practice Statement for the use of BBM tests in the diagnostic workup of patients with objective cognitive impairment being seen in specialized care.

– – Recommendation 1 — In patients with objective cognitive impairment presenting for specialized memory-care, the panel suggests using a high-sensitivity BBM test as a triaging test in the diagnostic workup of Alzheimer’s disease.
– – Recommendation 2 — In patients with objective cognitive impairment presenting for specialized memory care, the panel suggests using a high-sensitivity and high-specificity BBM test as a confirmatory test in the diagnostic workup of Alzheimer’s disease.
– – Good Practice Statement — A BBM test should not be obtained before a comprehensive clinical evaluation by a health care professional, and test results should always be interpreted within the clinical context. The panel urges clinicians to consider the pre-test probability of Alzheimer’s disease pathology for each patient when deciding whether or not to use a BBM test.

Upcoming clinical practice guidelines will address cognitive assessment tools (Fall 2025), clinical implementation of staging criteria and treatment (2026) and prevention of Alzheimer’s and other dementias (2027). This clinical practice guideline was convened and funded by the Alzheimer’s Association, but the Association was not involved in formulating the clinical questions or recommendations.

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Former Palmdale Insurance Agent Charged With $1.8M Fraud

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Formerly licensed insurance agent Matthew Evans, 36, of Palmdale, was arraigned and pleaded not guilty to multiple felony charges involving fraud, after a Department of Insurance investigation revealed he allegedly deceived several clients and acquaintances into investing over $1.8 million in a non-existent marijuana business named “House of Green.” Evans’s insurance agent license was revoked earlier this year after he pleaded no contest in a separate case.

The Department initiated the investigation after receiving a complaint from two victims who claimed they had invested a total of $1.3 million in House of Green, without seeing any return on their investment. According to the victims, Evans refused to update them on the status of their investment and did not provide any records for the business. Furthermore, there were no indications that House of Green was operational.

The investigation also identified 12 additional victims who experienced similar issues with Evans. Investigators discovered that Evans stole a total of $1,862,479 from 15 separate victims, all of whom believed they were investing in House of Green. Instead of using the funds for business purposes as promised, Evans embezzled the money to finance his lavish lifestyle and promote his public image, as well as his business, Evans Family Consulting Inc. Examples of his lavish lifestyle include million-dollar Palmdale homes and brand new Cadillac Escalades.

In April 2024, in an unrelated case also investigated by the Department, Evans and his wife both pleaded no contest to seven misdemeanor counts. In that case, they stole the identities of licensed insurance agents and used them on fraudulent insurance applications to collect undeserved commissions. Both had their licenses revoked as a result of the plea. They both received probation and were ordered to pay restitution.

A preliminary hearing is scheduled for September 15. This case is being prosecuted by the White Collar Crime Division of the Los Angeles County District Attorney’s Office.

The Department reminds consumers to verify they are working with a licensed agent and/or licensed business at http://www.insurance.ca.gov/0200-industry/0008-check-license-status/. If a consumer suspects they have been a victim, they are encouraged to file a complaint with the Department.

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July 21, 2025 – News Podcast

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Rene Thomas Folse, JD, Ph.D. is the host for this edition which reports on the following news stories:California Receives $4.1M From Gilead Sciences for Illegal Kickbacks. Westminster Seeks $600K in Civil Fraud Case Against Former Cop. SIBTF Now Pays More PD Than Core WorkComp System. DOI Warns State Leaders About Rising Comp Costs. OSHA Updates Penalty Guidelines to Support Small Business. Private Self-Insured Claim Counts Are Down But Losses Are Up. 70% of Cases Have Spontaneous Resorption of Herniated Disc. Liberty Mutual Releases 2025 Workplace Safety Index.

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Consumer Watchdog’s DOI FAIR Plan Challenge Case May Proceed

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Consumer Watchdog, a consumer advocacy group, filed a lawsuit against the California Insurance Commissioner and the California Department of Insurance in April 2025. The lawsuit challenged two bulletins (2024-8 and 2025-4) issued by Lara, which allowed insurance companies participating in the California FAIR Plan to impose surcharges on policyholders to recover costs from wildfire-related assessments.

The FAIR Plan is California’s insurer of last resort, designed to provide fire insurance for those unable to secure coverage in the traditional market, with costs traditionally shared among insurers based on their market share, not passed to consumers.

Consumer Watchdog argued that these surcharges were unlawful, violating the California Administrative Procedure Act (APA) and FAIR Plan statutes. They claimed the bulletins were issued without proper public notice or legislative approval and that the FAIR Plan statute requires insurers, not policyholders, to bear these costs. The lawsuit sought to block the surcharges, declare the bulletins invalid, and require insurers to refund any collected fees.

On July 22, 2025, Los Angeles Superior Court judge, James C. Chalfant, issued a ruling that partially dismissed the case. The court upheld Lara’s authority under Proposition 103 to issue the bulletins, dismissing two procedural claims related to violations of the APA.

However, the judge allowed the core claim – that the surcharges violate the FAIR Plan statute by improperly shifting costs to policyholders – to proceed. This was seen as a significant procedural victory for Consumer Watchdog, ensuring judicial scrutiny of the surcharge scheme.

Insurance Commissioner Lara issued a press release claiming the ruling affirmed his authority to protect consumers and stabilize the FAIR Plan, which Consumer Watchdog in it’s press release called misleading, as the court explicitly allowed the challenge to the surcharges’ legality to move forward.

“The court rejected the Department’s attempt to throw out the core of the lawsuit, finding that Consumer Watchdog may proceed with its claim that the pass-through surcharges violate California’s FAIR Plan statutes. The FAIR Plan is California’s last-resort fire insurance program, and the law requires insurers to share costs equally-not shift them to consumers.”

“This is a significant procedural victory that ensures the Commissioner’s arrangement, which could shift hundreds of millions of dollars from homeowners to insurers will get the scrutiny it deserves,” said William Pletcher, Consumer Watchdog’s Director of Litigation. “California consumers should not be forced to subsidize insurance companies when the law makes clear the amounts must be paid by insurers, not policyholders.”

The case was not fully dismissed; while two procedural claims were dropped, the central challenge to the legality of the FAIR Plan surcharges is ongoing, with Consumer Watchdog continuing to argue that the policy violates state law and harms consumers.

“This ruling means the Commissioner’s legally unsupported surcharge plan will now be tested in court,” said Ryan Mellino, who argued the case for Consumer Watchdog. “The law doesn’t allow insurers to profit from the FAIR Plan while pushing their losses onto the people they’re supposed to insure. This fight is just beginning – and we intend to prove in court that the Commissioner’s plan isn’t just unlawful, it’s a betrayal of the very consumers he’s supposed to protect.”

The American Property Casualty Insurance Association supported Lara, arguing that blocking the surcharges could destabilize the insurance market, while Consumer Watchdog maintained that the surcharges unfairly burden consumers and protect insurer profits.

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CHSWC Releases California Janitor Workload Study Report

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California’s Commission on Health and Safety and Workers’ Compensation (CHSWC) released the “California Janitor Workload Study” report by the University of California (UC) San Francisco and UC Berkeley.

The report, requested by Assemblymember Miguel Santiago, presents an overview of the physical workload, psychosocial stress, and work climate factors contributing to a high prevalence of adverse health outcomes among a sample of California janitors collected between October 2021 and January 2023.

Among the findings are that the prevalence of adverse health outcomes was high, janitors reported high physical workloads across numerous tasks, differences in the prevalence of adverse health outcomes by sex and age were slight, and union status and job tenure were associated with differences in the prevalence of adverse health outcomes.

In addition, most janitor tasks evaluated using direct measurements and validated risk assessment tools indicated high ergonomic hazards and musculoskeletal disorders (MSD) risk. High job strain increased the prevalence of adverse health outcomes, particularly the prevalence of anxiety or depression, and industry-based time allocations often differed substantially from the actual time required to clean a space.

The report includes recommendations for California legislators, including consideration of a formal California regulatory standard, as well as facilitation of a collaborative approach to target intervention efforts that mitigate ergonomic hazards.

The full California Janitor Workload Study report, including an appendix section that responds to comments from the public and CHSWC commissioners, is posted online.

CHSWC, created by the workers’ compensation reform legislation of 1993, is charged with examining the health and safety and workers’ compensation systems in California and recommending administrative or legislative modifications to improve their operation. CHSWC was established to conduct a continuing examination of the workers’ compensation system and of the state’s activities to prevent industrial injuries and occupational diseases and to examine those programs in other states.

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AG Resolves Janitorial Misclassification Case for $2M

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The California Attorney General announced a nearly $2 million settlement with CleanNet USA, Inc. and its four California Area Operators resolving an investigation by the Attorney General’s Office, which found that some of CleanNet’s janitorial franchisees were misclassified as independent contractors under CleanNet’s franchising model in violation of state law.

CleanNet USA is a nationwide company that provides janitorial franchising and commercial cleaning services under the “CleanNet” brand name and grants franchising rights to its California Area Operators, who sell CleanNet unit franchises to individuals and entities in California and enter into franchise contracts with these unit franchisees.

After the payment of an initial franchise fee, CleanNet assigns cleaning services contracts to unit franchisees, who then provide cleaning services for CleanNet’s customers. As a result of CleanNet’s unlawful misclassification of certain individual franchisees who personally performed cleaning work, these workers were denied the protections of California’s employment laws, such as the right to minimum and overtime wages, regular meal and rest periods, reimbursement of business expenses, and accurate and itemized wage statements, and were further subjected to unlawful deductions from their wages.

Under the settlement, CleanNet will pay $1,700,000 in restitution and $150,000 in civil penalties and comply with injunctive terms requiring it to cease its misclassification of certain cleaners, notify all former and current workers of the settlement, and undergo monitoring for three years, among other terms.

Misclassification of workers occurs when an employer improperly classifies their employees as independent contractors so that they do not have to pay payroll taxes, minimum wage or overtime, or comply with other wage and hour law requirements such as providing meal periods and rest breaks. “Employees,” unlike “independent contractors,” are entitled to a wide range of rights, benefits, and protections under California law, including workers’ compensation coverage if injured on the job, the right to family leave, unemployment insurance, the legal right to organize or join a union, and protection against employer retaliation. As courts across the country have found, the use of a franchising business model does not shield companies who use these models to misclassify their workers from liability.

Under the settlement, CleanNet USA and its four California area operators, CleanNet of Southern California, Inc. (DBA CleanNet of Southern California), D&G Enterprises, Inc. (DBA CleanNet of the Bay Area), Paqnet, Inc. (DBA CleanNet of San Diego), and FCDK, Inc. (DBA CleanNet of Sacramento), (collectively, CleanNet) will change their franchising business model, pay civil penalties, and provide restitution to their cleaners for the losses the cleaners incurred due to their unlawful deductions, failure to reimburse cleaners for their supplies, and failure to pay at least the minimum wage for all hours worked. All current and former cleaners will be notified by CleanNet with next steps to claim restitution.

Additionally, CleanNet will preserve all documents and records necessary to demonstrate its compliance with the terms of the stipulated judgment and make those records available to the California Department of Justice for at least three years. CleanNet will also provide training to all current and future cleaners as part of a mandatory initial certification program to ensure that all cleaners understand their duties as employers when they hire other workers to perform cleaning work for CleanNet’s customers, and that they are aware of the liabilities and risks associated with misclassifying their own employees as independent contractors. The franchise will also remove a clause from its template customer service agreement that restrains employee mobility.

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Fresno Man to Serve 7.5 Years for Opioid Prescription Fraud

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Kelo White, 44, of Fresno, was sentenced to seven years and six months in prison for illegally distributing oxycodone and hydrocodone pills, Acting U.S. Attorney Kimberly A. Sanchez announced.

According to court records, from 2014 through 2018, White and Donald Ray Pierre, 56, of Fresno, obtained more than 450,000 oxycodone and hydrocodone pills based on fraudulent prescriptions that were filled by their co-conspirator, Ifeanyi Vincent Ntukogu, 49, of Fresno, who was a pharmacist in Madera. White was responsible for more than 250,000 of those pills. The fraudulent prescriptions were purportedly from more than 10 different doctors whose signatures had been forged.

White and Pierre had Ntukogu review each prescription before he filled it to make sure that government regulators would not deem it suspicious. For example, Ntukogu reviewed and rejected prescriptions that were supposedly written by certain doctors or that were written for individuals who were having prescriptions filled at other pharmacies because he believed those prescriptions may raise red flags. White and Pierre paid Ntukogu in cash, and then they sold the pills for a significant profit.

Ntukogu was sentenced on Nov. 25, 2024, to seven years and three months in prison. Pierre was sentenced on July 21, 2020, to nine years and four months in prison.

This case was the product of an investigation by the Federal Bureau of Investigation, the Drug Enforcement Administration, and the California Department of Health Care Services. Assistant U.S. Attorneys Antonio Pataca and Joseph Barton prosecuted the case.

The case was investigated under the DOJ’s Organized Crime Drug Enforcement Task Force (OCDETF). OCDETF identifies, disrupts, and dismantles the highest-level criminal organizations that threaten the United States using a prosecutor-led, intelligence-driven, multi-agency approach. For more information about OCDETF, please visit Justice.gov/OCDETF.

This case was also part of the DOJ’s Operation Synthetic Opioid Surge, which is a program designed to reduce the supply of deadly synthetic opioids in high impact areas as well as identifying wholesale distribution networks and international and domestic suppliers.

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Appeal of California Comp Carrier Rehabilitation Plan Denied

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California Insurance Company provided worker’s compensation insurance to businesses. Eighty-five percent of its business is in California. In 2011 it patented a “Reinsurance Participation Agreement” (RPA). The RPA was designed to allow an insurer to offer a retrospective rating policy to small and medium-sized companies. The RPA would accomplish this by having an employer take out a guaranteed cost policy, then the insurer would cede some of the insured risk to a reinsurer, such as a captive reinsurer, together with a portion of the premium. The reinsurer would then enter into a side agreement with the policyholder to cede some of that risk back to the policyholder. At the end of the policy period, the reinsurer would refund some of the premiums to the policyholder if the losses were lower than expected or charge the policyholder more if the losses were higher.

Under a program called EquityComp, CIC followed this template and issued guaranteed cost policies that had been submitted to the rating organization for the commissioner’s approval. CIC had its affiliate, Applied Underwriters Captive Reinsurance Assurance Company (AUCRA), reinsure some of the risk and issue the side agreements to the policyholders, which were not submitted for the commissioner’s approval.

Beginning in 2012, 68 EquityComp policyholders filed various claims or actions challenging the RPA. In a 2016 ruling in one of those challenges, the commissioner found that the RPA constituted a misapplication of CIC’s filed rates in violation of Insurance Code § 11737. (Matter of Shasta Linen Supply, Inc., Insurance Commissioner (June 22, 2016) No. AHB-WCA-14-31 (Shasta Linen).) The decision declared that CIC’s failure to file and secure approval of the RPA as required by section 11658 rendered it void as a matter of law. CIC petitioned for review of Shasta Linen in Los Angeles Superior Court, and in 2017 the parties settled their dispute. The parties agreed they had a good faith dispute about whether the RPA was void as a matter of law and the remedy authorized by the Insurance Code. A recital to the agreement stated that this dispute was “ultimately for the courts to decide.”

Litigation on the other RPA claims and actions policyholders had filed against CIC continued in California courts, federal courts, administrative proceedings before the commissioner, and in arbitration. CIC succeeded in defeating class certification motions. (E.g., National Convention Services, LLC v. Applied Underwriters Capital Risk Assurance Co. (S.D.N.Y. July 27, 2019, No. 15cv7063) 2019 WL 3409882, at *1; Shasta Linen Supply, Inc. v. Applied Underwriters, Inc. (E.D.Cal. Apr. 17, 2019, Nos. 2:16-cv-158-WBS AC, 2:16-cv-1211 WBS AC) 2019 WL 3244487, at *2.) One federal court granted CIC and its affiliates summary judgment on claims that the RPA violated the Unfair Competition Law because it was void. (Pet Food Express, Ltd. v. AUI (E.D.Cal. Sept. 12, 2019, No. 2:16-cv-01211 WBS AC) 2019 WL 4318584, at *2, *4.)

As of January 2019, Berkshire Hathaway, Inc. (Berkshire Hathaway) indirectly owned 81 percent of CIC and its affiliates. Berkshire Hathaway agreed that month to sell its shares to Steven Menzies, CIC’s president and chief operating officer, who already owned 11.5 percent of the company. The agreement allowed Berkshire Hathaway to retain a $50 million breakup fee if the transaction did not close by September 30, 2019.

In April 2019 Menzies submitted an application to the department for approval of the transaction. After the commissioner found Menzies’ first two applications insufficient Menzies submitted a third on September 7, 2019. The department informed CIC that it could neither approve nor disapprove CIC’s application by September 30. Berkshire Hathaway required $10 million for an extension of the transaction deadline until October 10, 2019.

Menzies then proposed and the New Mexico Office of the Superintendent of Insurance agreed to hold an expedited approval process to re-domesticate CIC in New Mexico by merging CIC into a newly formed New Mexico corporation, CIC II. The New Mexico superintendent approved the merger, conditioned on the stock transactions between Menzies and Berkshire Hathaway closing by October 10, 2019.

CIC II satisfied the New Mexico superintendent’s conditions for approval, so the merger of CIC with CIC II would be completed by filing a certificate of merger with the California Secretary of State. (Corp. Code, § 1108, subd. (d).) On October 22, 2019, the department asked CIC by telephone not to file the certificate of merger with the California Secretary of State so that the parties could meet and resolve their issues. CIC agreed, but the parties never met.

On November 4, 2019, without notice to CIC, the commissioner filed an ex parte application to be appointed conservator of CIC. In January 2020, CIC unsuccessfully moved to vacate the conservatorship. CIC II and an affiliate of CIC filed federal actions seeking to vacate the conservatorship and enjoin it. (Applied Underwriters, Inc. v. Lara (E.D.Cal. 2021) 530 F.Supp.3d 914; California Ins. Co. v. Lara (E.D.Cal. 2021) 547 F.Supp.3d 908.) The district courts dismissed both suits, and the Ninth Circuit Court of Appeals affirmed. (Applied Underwriters, Inc. v. Lara (9th Cir. 2022) 37 F.4th 579, 600.)

In October 2020, the commissioner filed an application for approval of a rehabilitation plan, which would end the conservatorship. CIC opposed the settlement provision in section 2.6 of the plan. The trial court approved the plan in April 2024. CIC appealed and also filed a petition for writ of mandate challenging the approval of the plan. This court summarily denied the petition in a one-paragraph order, noting that CIC had failed to demonstrate that its remedy on appeal was inadequate. (Cal. Ins. Co. v. Superior Court (June 20, 2024, A170573).)

With regard to the CIC appeal, the Court of Appeal found no merit in any of CIC’s arguments and affirmed the trial court’s order in the published case of Insurance Commissioner of the State of California v. California Insurance Company et al. – A170622 (July 2025)

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