DOI has Jurisdiction to Invalidate Carrier "Unfiled" Side Agreements

Los Angeles,CA( WorkCompAcademy) - Adir operates the Curacao chain of retail department stores. Between 2004 to 2011 Travelers issued Adir annual guaranteed cost workers’ compensation insurance policies. Each policy was filed with the Workers Compensation Rating Bureau (WCRB) pursuant to Insurance Code section 11658 and specified the rates to be charged to Adir.

In 2012 Adir did not renew its workers’ compensation insurance with Travelers and refused to pay Travelers’ post-policy period adjusted premiums as required by the side agreements.

After negotiations to recover premiums Adir owned under the large risk alternative rating plan failed, Travelers in 2014 served Adir with an arbitration demand. In response Adir filed an action in Los Angeles County Superior Court (L.A.S.C. No. BC575513) against Travelers and its insurance broker, Grosslight Insurance, asserting claims for breach of contract, tortious breach of the implied covenant of good faith and fair dealing and fraud.

The case proceeded in various forums, at various times, In one of the forums, Adir on April 22, 2016 filed an administrative appeal (and on June 2, 2016 a supplemental appeal) with the Department of Insurance pursuant to section 11737, subdivision (f), which authorizes a person aggrieved by application of a rating system to appeal to the Commissioner. In response Travelers petitioned for a writ of prohibition in the pending trial court action requesting the court stay the administrative hearing while the lawsuit was pending. The court denied the petition.

The Commissioner concluded that the Department of Insurance had "exclusive jurisdiction [pursuant to section 11737, subdivision (f)], to adjudicate [Adir]’s claim that Travelers’ unfiled Side Agreements misapplied Travelers’ filed rating plan by violating Insurance Code sections 11658 and 11735, as well as California Code of Regulations, title 10, section 2268." On the merits the Commissioner ruled Travelers’ side agreements were void because they had not been filed with the WCRB as required and constituted a misapplication of Travelers’ filed rating plan in violation of sections 11658 and 11735.

Travelers filed a petition for a writ of administrative mandate challenging the Commissioner’s decision which was denied by the Superior Court, The Court of Appeal affirmed the Commissioner's Order as well as the postjudgment order granting Adir’s motion for attorney fees, in the published case of The Travelers Indemnity Co., v Lara - B306897 (November 2022).

Travelers contends the Commissioner acted in excess of his jurisdiction by deciding Adir’s administrative appeal while Adir’s trial court action was pending. Citing the rule of exclusive concurrent jurisdiction applicable between two judicial tribunals. This rule provides that where several courts have concurrent jurisdiction of a certain type of proceeding, the first one to assume and exercise such jurisdiction in a particular case acquires an exclusive jurisdiction.

However, the Court of Appeal noted that there is "some doubt whether the rule of exclusive concurrent jurisdiction applies here." The "judge-made rule" of exclusive concurrent jurisdiction "is based upon the public policies of avoiding conflicts that might arise between courts if they were free to make contradictory decisions or awards relating to the same controversy."

"Because it is a policy rule, application of the rule depends upon the balancing of countervailing policies." The exclusive concurrent jurisdiction doctrine does not apply in this context to proceedings pending before the trial court and an administrative agency; and, in any event, it was reasonable and consistent with the primary jurisdiction doctrine for the trial court to defer to the Commissioner’s determination of the validity of the agreement at issue.

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