Zurich American Insurance Co. is the first workers' compensation insurer to reach a settlement with California since a new law that requires insurers to keep arbitration disputes with employers in California.
Under the agreement with the California Insurance Department, Zurich American Insurance Co. and Zurich American Insurance Company of Illinois will no longer force California employers to arbitrate commercial disputes at Zurich's headquarters in Chicago and no longer apply New York law to the arbitrations. Under the settlement, California employers can choose instead to arbitrate disputes in California under California law, the insurance department said.
"Zurich's practices required California employers to resolve disputes in Zurich's backyard, under unfavorable law and circumstances and at added expense to employers," Dave Jones, California Insurance commissioner, said in a statement. "This settlement gives California employers the opportunity to level the playing field by arbitrating disputes in California, under California law."
The department filed an order to show cause against Zurich in 2012, asserting Zurich failed to file workers' compensation large deductible agreement forms with the department as required by the California Insurance Code.
"Zurich has not admitted any wrongdoing, and no fines or penalties have been imposed on Zurich as part of the settlement," said Steve McKay, a spokesman for Zurich, in a written statement.
In 2011, California passed a law that prevents workers' compensation insurers from unilaterally forcing California businesses to other states to resolve disputes. At the time insurers quote a policy, they must say where the insurer proposes to resolve disputes. If the insurers suggests arbitrations be held in other states, California businesses can insist that arbitrations be held in California.
The new law went into effect July 2012. Since then, other insurers have conformed to the law, but Zurich is the first to reach a settlement with regulators in connection with it, said Madison Voss, a spokeswoman for the department.
Zurich never filed its large deductible agreements for review, even after the department advised all insurers in 2011 that filing was required, the insurance department said. Zurich's agreements were generally offered on a take-it-or-leave-it basis to employers. The agreements also required that New York law apply to disputes, and disputes be resolved in Chicago, regardless of whether the employer's business was based entirely in California.
A large-deductible agreement generally refers to a workers' comp policy where the insurer pays the injured workers' claims, but the employer reimburses the insurer up to a large deductible, effectively self-insuring much of its workers' compensation obligation.
Zurich American and Zurich American Insurance Company of Illinois currently have Best's Financial Strength Ratings of A+ (Superior).
Zurich Financial Services, which had a 5.37% market share in California, is the sixth largest writer of workers' comp in the state as ranked by 2012 direct written premiums, according to BestLink, A.M. Best's online financial system. The top five writers of workers' comp in California were: the State Compensation Insurance Fund of California, with a 10.04% market share; Travelers Group, with a 7.58% market share; Hartford Insurance Group, 7.37% market share; Berkshire Hathaway Insurance group, with a 7.30% market share; and American International Group, with a 5.53% market share.