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Berkshire units settle with California over 'bait-and-switch' marketing tactics

Berkshire Hathaway Inc. units California Insurance Co., Applied Underwriters Captive Risk Assurance Co. Inc. and Applied Underwriters Inc. have agreed to halt a practice of using "bait-and-switch" marketing tactics to sell a workers' compensation insurance product.

The settlement with the California Department of Insurance includes new disclosures that will provide policyholders with critical details regarding the product.

The commissioner determined in May 2016 that California Insurance and Applied Underwriters were selling the workers' compensation product with illegal side agreements that modified the obligations of the parties under the policy. The agreements did not disclose basic premium information; failed to disclose required binding arbitration outside the U.S.; and used a complicated method for calculating premiums, deposits or other payments due. Although the side agreements, known as reinsurance participation agreements, require approval from the department, the Berkshire companies used the agreements without receiving the department's authorization, according to a news release.

In September 2016, the department ordered California Insurance and Applied Underwriters Captive Risk Assurance to discontinue the sale of certain workers compensation policies, known as EquityComp policies, without filing key addendum to the policies with the department for the commissioner's approval.

At the time, the units agreed to work with the department in determining a formula for calculating future claims that applied to existing EquityComp policies.