In this class action lawsuit in a California federal court, Shasta Linen Company and all those similarly situated brought an action against Applied Underwriters, Inc. and its affiliate entities. Shasta Linen alleges that the “EquityComp” workers’ compensation insurance program marketed and sold by Applied Underwriters violated the California Insurance Code and Regulatory provisions by unlawfully using a Reinsurance Participation Agreement (“RPA”) to control workers’ compensation rates (and thus, charged higher rates) without first having the RPA filed and approved by the Department of Insurance as required by law.
Defendants filed a motion to dismiss Shasta Linen’s claims to the extent that they seek to invalidate the RPA’s rates on the theory that the RPA is an unfiled plan pursuant to Section 11735 of the California Insurance Code because according to the defendants, “an unfiled rate is not an unlawful rate.” The court noted that Section 11735 requires every insurer to “file with the Commissioner all rates, rating plans, and supplementary rate information that are to be used.” Section 11737 additionally provides that “[t]he Commissioner may disapprove a rate if the insurer fails to comply with the filing requirements under Section 11735.” The court then noted that under Section 11737, the use of a rate that has not been filed is not an unlawful rate unless and until the Commissioner conducts a hearing and disapproves a rate. As the Complaint did not allege that the Commissioner conducted a hearing and disapproved the RPA’s rates, the court held that Shasta Linen fails to state a claim that the RPA’s rates are void based on the defendants’ failure to comply with Section 11735, and thus dismissed the claims to the extent they seek to void the RPA’s rates on the theory that defendants did not comply with Section 11735. The court however noted that Shasta Linen’s claims based on California’s Unfair Competition Law and its fraud claims are not limited to the grounds that defendants did not comply with Section 11735, and thus defendants’ motion to dismiss was denied with regard to those claims.