Trial Materials: WARWICK AMUSEMENTS CORPORATION, ET AL VS. APPLIED UNDERWRITERS, INC., A NEBRASKA CORPORATION ET AL

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                                SPENCER Y. KOOK (SBN 205304)
skook@hinshawlaw.com

KENT R. KELLER (SBN 043463)
kkeller@hinshawlaw.com
HINSHAW & CULBERTSON LLP
633 West Sth Street, 47th Floor

Los Angeles, CA 90071-2043
Telephone: 213-680-2800
Facsimile: 213-614-7399

TRAVIS WALL (SBN 191662)
twall@hinshawlaw.com
HINSHAW & CULBERTSON LLP
One California Street, 18th Floor
San Francisco, CA 94111
Telephone: 415-362-6000
Facsimile: 415-834-9070

Attorneys for Defendants and Cross-Complainants

SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF SAN FRANCISCO
UNLIMITED JURISDICTION

WARWICK AMUSEMENTS CORPORATION, a
Delaware corporation, WARWICK CALIFORNIA
CORPORATION, a California corporation,
WARWICK DENVER CORPORATION, a
Delaware corporation, WSF BEVERAGE
CORPORATION, a California corporation,
WARWICK MELROSE DALLAS
CORPORATION, a Delaware corporation, SILVER
AUTUMN HOTEL (N.Y.) CORPORATION, LTD.,
a Delaware corporation,
Plaintiffs,

vs.
APPLIED UNDERWRITERS, INC., a Nebraska
corporation, APPLIED UNDERWRITERS
CAPTIVE RISK ASSURANCE COMPANY, INC.,
an Iowa corporation, CALIFORNIA INSURANCE
COMPANY, a California corporation,
CONTINENTAL INDEMNITY COMPANY, an
Iowa corporation, APPLIED RISK SERVICES,
INC., a New York corporation, and DOES | through
50, inclusive ,

Defendants.

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ELECTRONICALLY

FILED

Superior Court of California,
County of San Francisco

06/25/2018
Clerk of the Court
BY: VANESSA WU
Deputy Clerk

Case No. CGC-16-551614

DEFENDANTS’ POST-TRIAL
OPENING BRIEF

First Am. Compl. Filed: May 19, 2016
Bench Trial: May 21, 2018

Dept: 306
Judge: Hon. Richard B. Ulmer, Jr.

DEFENDANTS’ POST-TRIAL OPENING BRIEF,
CASE NO. CGC-16-551614APPLIED UNDERWRITERS CAPTIVE RISK )
ASSURANCE COMPANY, INC., an Iowa corporation)
and CALIFORNIA INSURANCE COMPANY, a )
California corporation,
Cross-Complainants,

vs.
WARWICK CALIFORNIA CORPORATION, a
California corporation and WSF BEVERAGE
CORPORATION, a California corporation,

Cross-Defendants.

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-551614I THe Ce eee eee ec eecccce cece nce ccc een eee neces L LLL 1
I REASONABLE CONCLUSIONS FROM THE EVIDENCE.......ceccecceceseeeseseeseenseenereae 8
Ill. ARGUMENT ......cscsssssssssssssssssesscsessssssesessssscsnevssessssesssscevssessssosessosssssensscsassessceoesssesssseesseasnesoens 8

A. Cross-Claiims.......c.csccescescessecseesessessessessessesessessacsssesseereseseesesesesesneesesseasecaseeeesteneaeeestees 8

IV. REMEDY
A.

B.

TABLE OF CONTENTS

1. Cross-Claim No. 1 — Breach of Contract (RPA): The Evidence Clearly
Demonstrates a Breach of the RPA’s Payment Obligations by
Warwick CA

2. Cross-Claim No. 2 — Breach of Contract (CIC Policie:

Clearly Demonstrates a Breach of the CIC Policies ..
Warwick CA’s Claims .........ccsssssssssssessecsescesenssssssnsssssssssssessnsseesoeescsnssasssssasanssssasnsses 12|
1. Claim No. 1 — Warwick CA Has Failed to Demonstrate a Breach of
Contract...
2. Claim No. 2 — Warwick CA Has Failed to Demonstrate Bad Faith ............... 12|
3. Claim No. 3 — Warwick CA Has Not Demonstrated a Fraud Claim.............. 13
4. Claim No. 4 — Warwick CA Has Failed to Prove Up a Viable UCL
Clai 15|
(i) No Standing and No Injury in Fact to Assert a UCL Claim... 15
(ii) The Use of an Unfiled Workers’ Compensation Rate is Not
Unlawful and Only the Commissioner May Disapprove of an
Unfilled Rate .......escsssssssssssssssnscssssssssssssssssssssssssenssesseesossensssssssssseseee 15|
5. Claim No. 5 — Warwick CA is Not Entitled to Declaratory Relief... 17|

6. Claim No. 6: Warwick CA Has Failed to Establish a Basis for
Rescission titel da tetats lata ahalahdadadedalatabaclabalanaidadudallatatatababadudadadudadad 17|

7.

Warwick CA Should Be Required to Pay All Monies Owed under the RPA or,

If the Contract Is Not Deemed Joint and Several, Its Share of Monies Owed ........... 19]
Alternatively, Warwick CA Should Be Required to Pay What the Premiums
and Assessments Owed under the CIC Policies for the California Operations.......... 20)

DEFENDANTS’ POST-TRIAL OPENING BRIEF,
CASE NO. CGC-16-551614TABLE OF AUTHORITIES
Page(s)

Cases
Burlesci v. Petersen,

68 Cal. App. 4th 1062 (1988) ....ccsccscssssssssssssesecsnssssesesrsssesessesssssaresesiessnasesnsenesesesucasseseseeee 19
Cal Union Ins. Co. v. Trinity River Land Co.,

105 Cal. App. 3d 104 (1980) v.cccssssssssssecsssessssssssesssvssnsesesesessesssssanasseseseessessntasasesesseesssesnessees 7
Chen vy. L.A. Truck Cntr., LLC,

7 Cal. App. Sth 757, 768-769 (2017) ..scessessesssesssereseessesesssesessseserssseseseeessssssessserssarsseesesseesneens 10

Cristler v. Express Messenger Sys., In
171 Cal. App. 2d 72 (2009)

De Angeles v. Cotta,
62 Cal. App. 691 (1923) vcccececssesssecssessnssssesessusssusssussessssusssnecessessecsseessecsseesseesseasnecsneasness 9,10

Enterprise Leasing Corp. v. Shugart Corp.
231 Cal. App. 3d 737 (1991)

Farrington v. A. Teichert & Son, Inc.
59 Cal. App. 2d 468 (1943)...

Forbes v. Board of Missions,
17 Cal. 2d 332 (1941) weceecceessessseecseesstecstesseesssessvesssecsnecsnessneesnessssesnesseesesessucssussavessversneeseeesereae 10

Grey v. Amer. Mgmt. Serv.,
204 Cal. App. 4th 803 (2012) .....ceceeceseeecsesseseneseesseeesneeseseseserseenessstensuseessaeesecisenersnenreneees 16

Gummer vy. Mairs,
140 Cal. 535 (1903) ....cecseecssessseesessnessesnneassesssesessssvsssnsessesssessssssesssusansessussnseasissssscausesnsesneess 9,10

Hall y. Time Inc.,
158 Cal. App. 4th 847 (2008) ....escceessecssesssessessserssecssecssecsnesssecssrssnessesssessasessessaressessareesenesetens 15

Jonathan Neil & Associates v. Jones,
33 Cal. 4th 917 (2004) oo... eecssecsesssesssesssessnesssesssssssessseensesssessssesseesssesseesseessscsnacssecevecsneceveceveseeess 13

Joshua Tree Townsite Co. v. Joshua Tree Land Co.,
100 Cal. App. 2d 590 (1950) .

Kaneko v. Okuda,
195 Cal. App. 2d 217 (1961) ccsssossssssssssssssssssssesssssssussssssnaesssssuesissessenseeeseesuaveseseseeeeseeusinseea 10

McKeill vy. Washington Mut., Inc.,
142 Cal. App. 4th 1457 (2006) ..cccccsccscsssssesessessecensssssessssssessassesessesnsssesssssesenssneseeseseesees 19

DEFENDANTS’ POST-TRIAL OPENING BRIEF,
CASE NO. CGC-16-551614Medina v. Safe-Guard Prods., Int'l, Inc.,
164 Cal. App. 4th 105 (2008)...

Neet v. Holmes,
25 Cal. 2d 447 (1944) .oececcccecseseesseeesssesessseseesessssneeesseesesssessseseseesssussnsenssseesessieraseesseesnesenenee 18

Oasis W. Realty, LLC v. Goldman,
ee ate ee Oe eer ere alata etatatatatataldeedmietaletatabatatraaatadstatet ast astatstataldads 9

Olson v. Cohen,
106 Cal. App. 4th 1209 (2003) .

PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Well & Shapiro,
150 Cal. App. 4th 384 (2007)

Progressive West Ins. Co. v. Sup. Ct.,
135 Cal. App. 4th 263 (2005) .....cscccecseesseesseerseesseesssessuessesesuesseeesarsserssessssanssnesavessesseesneesneess 13

Saret-Cook v. Gilbert, Kelly, Crowley & Jennet,
74 Cal. App. 4th 1211 (1999) .oocceeceeeseesessseessesssesssesssesssesssesssesssessseesssesnessensssesseessseceeessees 18

Shasta Linen Supply, Inc. v. Applied Underwriters, Inc.,
No., CV 2:16-158 WBS AC, 2016 U.S. Dist. LEXIS 143545 (E.D. Cal. June 20, 2016)...... 17

Shasta Linen Supply, Inc. vy. Applied Underwriters, Inc.,
No., CV 2:16-158 WBS AC, 2016 U.S. Dist. LEXIS 82850 (E.D. Cal. Oct. 17, 2016)......... 17

Tenet Healthsystem Desert, Inc. v. Blue Cross of Cal.,
245 Cal. App. 4th 821 (2016)

Travers v. Louden,

254 Cal. App. 2d 926 (1967) ..ececssecsecssecssecssecsssesssssecssesssesssecesecesecesecascsnecsnesansessssseessesnvecevess 17
Vu v. Calif: Commerce Club, Inc.,

58 Cal. App. 4th 229 (1997) oo. ccccecssecssesssessessessessessenssesseeessesssasssecssassnaesnacsnecsneesnecsuecenecseses 19
Statutes
Cal. Civ. Code § 1588 ooo... ccecsesteccscseeessesesecsueseeeacsseceuesescacsnsaceueseseeacsesseesacanesesesueaneseese 11
Cal. Civ. Code § 1589. ccecseceeesssssseseetesesssseesesessacsrsseeseacsusseeeaseansacsenesecaessaessenesnsaceeseesseneateseeee 11
Cal. Civ. Code § 1659.0... ececccecscescssecssseesessseneneneseacensuensnescseneaessacasaeaeensecsscnsacesseasacasaeaearaneneaee! 9,10

Cal. Civ. Code § 1660

Cal. Civ. Code § 1669

Cal. Civ. Code § 169]... escecsesssessscsessesssesssssssesseeseesssssseenesssesesssesesesesessnssassseenssssesssssessseesseeanseatense 17

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-551614Cal. Ins. Code § 11735...

Cal. Ins. Code § 11737...

Cal. Ins. Code § 11737(a)

Cal. Labor Code § 3700...

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-551614TABLE OF ACRONYMS

“CIC” refers to California Insurance Company

“CIC Policies” refers to the workers’ compensation insurance policies issued by CIC. Copies of
the CIC policies, estimated and earned, have been submitted as Exhibits 137, 139, and 141
(estimated CIC Policies) and Exhibits 143, 145 and 147 (earned CIC Policies).

“LDF” refers to “Loss Development Factor”
“Program” refers to the EquityComp® Program
“RPA” refers to the Reinsurance Participation Agreement

“RRPA” refers to the “Retrospective Rating Participation Agreement,” which is attached as
Exhibit 1 to Trial Exhibit 187.

“Warwick” refers to Plaintiffs Warwick California Corp., WSF Beverage Corp., Warwick
Denver Corp., Warwick Melrose Dallas Corp., and Silver Autumn Hotel (N.Y.) Corp., Ltd.

“Warwick CA” refers to Plaintiffs Warwick California Corp. and WSF Beverage Corp.
“Willis” refers to Willis of New York, Inc.

“W/C” refers to workers’ compensation

TABLE OF EVIDENTIARY CITATIONS

“April Sheh Dep.” refers to the transcript of the April 10, 2018 Deposition of Michael Sheh
“Bowe Dep.” refers to the transcript of the April 24, 2018 Deposition of Christina M. Bowe
“Exh.” refers to “Trial Exhibit”

“Jan Sheh Dep.” refers to the transcript of the January 18, 2018 Deposition of Michael Sheh
“Steers Dep.” refers to the transcript of the May 30, 2017 Deposition of Christina M. Bowe
“WOB” refers to Warwick CA’s May 18, 2018 Opening Brief

“0523TR” refers to the transcript of proceedings before the Court on May 23, 2018
“0524TR” refers to the transcript of proceedings before the Court on May 24, 2018
“0529TR” refers to the transcript of proceedings before the Court on May 25, 2018
“0530TR” refers to the transcript of proceedings before the Court on May 30, 2018
“0531TR” refers to the transcript of proceedings before the Court on May 31, 2018

“0604TR” refers to the transcript of proceedings before the Court on June 4, 2018

DEFENDANTS’ POST-TRIAL OPENING BRIEF,
CASE NO. CGC-16-551614THE EVIDENCE

The submitted evidence proved the following relevant and deciding facts without dispute:

Warwick Amusement Corporation, Its Subsidiaries and Its Broker, Willis of New York
1.

lis and Warwick Amusement Corporation’s 2013 Search for W/C Insurance
6.

Warwick California Corporation, WSF Beverage Corporation, Warwick Denvey
Corporation, Warwick Melrose Dallas Corporation, and Silver Autumn Hotel (N-Y.)
Corporation, Ltd. (collectively “Warwick”), sister companies operating under a holding}
company Warwick Amusements Corporation [Exh. 111, p. 5], are sophisticated buyers of
workers compensation insurance (“W/C”), having done so for years.

Mr. Michael Sheh, an accountant, is the vice-president of each of the Warwick entities
and is the one at Warwick responsible for reviewing and recommending W/C proposals|
presented to Warwick since 2004. [0524TR:12:20-26, 16:7-17:20]

At all relevant times, Mr. Sheh resided and worked in Denver, Co. [0524TR:21:20-25]

In connection with Warwick’s search for W/C options for the 2013/2014 year, Mr. Sheh|

worked with Charles Steers and Christina Bowe of Willis of New York, Inc. (“Willis”

since at least 2004 when Mr. Sheh joined. [0524TR:19:22-20:5]
Willis has been and is the third-largest captive manager in the United States and it has

employees with captive expertise. [(0604TR:361:15-362:22; Steers Dep: p. 22:15-20]

In March 2013, Willis began its search for W/C options for Warwick for the 2013 t
2014 year. [Exh. 111]

Due to Warwick’s poor historical loss experience, most carriers declined to offer W/C
insurance for the 2013-2014 year (only 2 of 25 offered quotes) and those that did the
presented quotes of annual premiums in excess of $ 1 million. [Exhs. 64, p. 2 & Exh. 72]
p. 1; Steers Dep., pp. 36:24-37:11, 40:21-41:1; Bowe Dep., pp. 119:23-120:5]

Warwick considered these options “unacceptable.” [Exh. 76, p. 1; 0529TR:53:8-20]

For the 2013-2014 year, Warwick and Willis considered separate policies for each of the
Warwick hotels, but as in years past, the total premium of separate policies versus a]
program that combined all hotels “was more expensive.” [Exh. 74, p. 1]

1

DEFENDANTS’ POST-TRIAL OPENING BRIEF,
CASE NO. CGC-16-55161410. Based upon Willis’ suggestion, Warwick considered “alternative” loss-sensitive

programs though Mr. Sheh was “concerned that Warwick [did] not have the

infrastructure in place to effectively prevent and manage losses.” [Exh. 70, p. 1]

11. In a May 24, 2013 email, Mr. Sheh advised his boss, Mr. Richard Chiu, of the need to

consider “alternative” W/C options, but specifically cautioned Mr. Chiu of the risks of
such options including the facts that “WC claims [have] no time limits” and how a small

injury “can blow up to larger losses.” [Exh. 73, p. 2 (WARWICK010924)]

is’ Submission to Applied and Warwick’s Decision to Go with the Program

12. On March 14, 2013, Willis requested that Applied Underwriters, Inc. (“AUI”) provide a
W/C quote for all of the Warwick entities and, on that date and thereafter, provided
underwriting information for all those Warwick operations including historical payroll,
experience modification and loss data for all of the Warwick entities. [Exhs. 111 & 116]

13. Warwick’s California estimated employee force (by payroll) constituted only 5.16 % of
Warwick’s nationwide operations. [Exh. 79, p. 14 ($ 1,179,440 (CA estimated payroll
($749,980 + $256,549 + $172,911) / $22,849,157 (Total estimated payroll) = 5.16%]

14.On May 22, 2013, AUI provided to Willis proposal papers for W/C through the
EquityComp® Program (the “Program”), a 3 year loss sensitive captive reinsurance
program, with a minimum and maximum cost of between $1,077,585 - $4,912,392,

depending on loss experience. [Exh. 79] Included with this May 22, 2013 transmission

of proposal papers was a copy of the Reinsurance Participation Agreement (“RPA”).

15. The EquityComp® Rate Quote Proposal specifically advised Warwick that:

e “Guaranteed cost workers’ compensation insurance policies will be issued” in
connection with the program and identified the carriers as California Insurance
Company (“CIC”) and Continental Indemnity Company “(CNI”);

« A “Profit Sharing Plan, effected through a reinsurance transaction that is separate
from the guaranteed cost policies and independently rated, also applies”;

e Warwick’s “risk retention is created by [its] participation in, and cession of
allocated premiums and losses to [a] facultative reinsurance facility,” AUCRA;

2

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-551614e = The “Profit Sharing Plan is not a filed retrospective rating plan or dividend plan;”

e The “Profit Sharing Plan requires a minimum three year contractual commitment
from [Warwick] with significant penalties for early cancellation”;

e The “final, net three-year cost will vary” between an estimated net minimum and
maximum of $1,077,585 and $4,912,3921.

e = =Warwick’s “actual, final net cost will be determined using the ultimate costs of
your claims along with the factors and tables set forth in [its] Reinsurance
Participation Agreement (Final Agreement) which specifies how a portion of the
premiums and losses occurring under the guaranteed cost policies are ceded to
AUCRA for further credit to your cell account”;

e Warwick’s capital deposit requirements;

e “Since the ultimate cost of claims can not be known in advance with certainty,
loss development factors as set forth in the Final Agreement will be applied to all
claims to estimate their ultimate cost’; and

e “At the end of the active term ..., calculations will continue to be performed
annually thereafter in accordance with the Final Agreement.”

[Exh. 79, p. 13 (Willis_026957)]

16. The rates and charges provided by AUI in the quote were determined based upon
Warwick’s national account. [0530TR:134:16-23; 224:23-225:11]

17. On May 24, 2013, AUI provided a Sample Plan Analysis to Willis, which provides an
illustration of how monthly Program charges are calculated including specific statements
highlighting the impact of loss development factors (“LDFs’) to project ultimate losses
and the impact of such projections on Program charges. [Exh. 119, pp. 7-11]

18. On May 28, 2013, the RPA was provided to Willis again for its review. [Exh. 122]

19. On June 11, 2013, Willis provided the Program Proposal and Rate Quote (“Proposal”),
Program Summary and Scenarios (“Summary and Scenarios”), the RPA and other
documents to Mr. Sheh with an email setting forth the following highlights [Exh. 79]:

e “The program is a 3 year cumulative program which they term a ‘pay as you go”

3

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-55161420.

21.

22.

24.

25.

26.

27.

program because the adjustments are processed monthly and are based on your

losses (blended of paid and incurred) and Applied Underwriters” loss projection

(they use the greater of the two to arrive at the monthly billings).”

e The fact that program charges depended on “loss experience” and could be as

high as $1,637,464 for one year or $4,912,392 for the three years of coverage,
plus taxes and fees;
e The fact that “[a]fter the 3 year program ends, the adjustments continue annually

for approximately 7 years;” and

«The fact that there is a cancellation fee of “8% of the[] estimated loss containment
amount or approximately $85K” if Warwick does not renew all three years.
Willis specifically understood that adjustments could continue annually for years after the
program ends and that it would usually take three to five years or more to get a profit
sharing distribution. [Steers Dep.: pp. 81:24-82:20]
The fact that LDFs would be applied to determine ultimate claims costs is specifically
disclosed in the Program Proposal. [Exh. 79, p. 13 (“Since the ultimate cost of claims

can not be known in advance ... loss development factors ... will be applied ...”)]

. LDFs are actuarially developed and within industry norms. [0530TR:216:24-217:12]

. The composite LDFs to be used for Warwick and the fact that LDFs were “subject to

change without notice” were specifically disclosed in the RPA. [Exh. 79, p. 25]

Willis was aware that LDFs “applied to incurred amounts of each claim monthly” so that
Applied could “collect up front what they need for the claims and reserve appropriately in
order to avoid having to go back to the insured to collect more.” [Exh. 10, p. 1]

As Willis’ broker testified, the fact that LDFs in the RPA applied to determine program
costs was specifically discussed with Mr. Sheh. [Steers Dep.: pp. 94:7-22, 99: 10-20]
Willis produced a document with a handwritten note that says “Charlie spoke /w Michael
about LDF’s — he is okay!!” [Exh. 11, p. 1]

Unlike other captive programs — where participants are required to pay up-front all
required premiums and collateral — the Program only set forth charges that were based

4

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-551614upon “real-time” consideration of losses, which provides a cash-flow benefit to customers
to keep their monies if and until it is needed in the Program. [0531TR:351:23-352:13]

28. To address variability in monthly Program charges, Warwick was advised that it should
budget for the maximum or the loss pick containment amount to have funds in place to
pay Program charges. [0531TR: 260:1 1-17, 311:20-313:16]

29. Willis was also aware of this need for Warwick to “budget” as it inquired with Applied
on to how the budget might change if Warwick were to acquire a new hotel. [Exh. 127]

30. According to Willis, it was made “very clear” to Mr. Sheh that charges “will vary based
on claims experience” and that Mr. Sheh could not assume monthly payments would be
12 equal payments of the Program’s estimated cost. [Steers Dep.: 127:3-16]

31. Warwick and Mr. Sheh were well aware of how captive W/C programs worked having
used a W/C captive program for 3 years in the past. [Exhs. 88-91; 0529TR: 72:2-75:21]

32. In addition to the Program, in June 2013, Warwick considered another captive program
(the “Artex Captive Program”). [Exhs. 78 & 63 (comparing Artex to the Program)]

33. Notably, in 2017, Warwick established its own insurance captive program to deal with
enterprise risk issues. [Jan Sheh Dep.:125:14-126:17]

34. Mr. Sheh considered the Program to be better than Artex because, unlike the “pay as you
go” approach under the Program, under Artex, Warwick would “need to pay upfront the
$1.035 million premium plus $225,000 collateral.” [Exh. 63, p. 1]

35. At the end of the day, in June 2013, Warwick primarily considered two W/C options:

e A Liberty Mutual guaranteed cost policy which would have an estimated cost of
$1,106,899 (or, over three years, due to increasing premiums, an estimated cost of
approximately $3,906,899) [Exh. 63, p. 2];

e The EquityComp® Program through which Warwick would obtain three years of
W/C coverage for an estimated cost of $1,077,586 to $4,912,392 depending upon
the ultimate cost of claims [Exh. 63, pp. 2-3 & 9; see also Exh. 79].

36. Mr. Sheh recommended to his boss that Warwick go with the EquityComp® Program for
various reasons, including his belief that Liberty Mutual premiums would increase in

5

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-55161437.

38.

40.

41.

42.

renewals for the following three years and the Program could be positive “[i]f we
continue to reduce our work injury and control our current claims.” [Exh. 63, pp. 1-3]

To communicate Warwick’s interest in proceeding with the Program, on June 14, 2013,
Mr. Sheh executed the Request to Bind Coverage & Services on behalf of all Warwick
entities, including Warwick Amusement Corporation. [Exh. 135, p. 1]

Thereafter, on June 19, 2013, Mr. Sheh executed the RPA. [Exhs. 102 (pp. 2-3) or 136]
The signatory “Participant” under the RPA is defined to include Warwick Amusements
Corp., Silver Autumn Hotel (N.Y.) Corp. Ltd., Warwick California Corp., Warwick

Denver Corp., Warwick Melrose Dallas Corporation, and WSF Beverage Corp. [See id.]

. Mr. Steers admitted that he understood the Program [Steers Dep: p. 28:7-23] and it was

his understanding that Mr. Sheh understood the RPA. [Steers Dep: p. 106:24-107:8]

Mr. Sheh admits he did not read the RPA prior to executing it and simply relied upon
representations made by Willis. [0529TR:82:4-24, 84:13-85:25, 90:24-92:1, 93:2-23]
While Warwick claims that it did not understand Program charges, Mr. Sheh himself
submitted a demonstrative at trial setting forth calculations of what the Program would
cost for only Warwick’s California operations, which exhibited a clear and nuanced
understanding of how charges are calculated. [Exh. P-8; 0529TR:29:17-37:18]
Thereafter, W/C insurance policies were issued by CIC and CNI for the 2013/2014 year
to cover all of Warwick’s operations. [Exhs. 137-138] Renewal policies were issued by

CIC and CNI for the 2014/2015 and 2015/2016 years. [Exhs. 139-142]

Warwick’s Charges Under the Program

43.

44.

45.

In or around November 2015, Warwick stopped paying amounts due under the Program.
[Exh. 150, p. 1] In total, Warwick has paid $3,292,760.72 into the Program. [See id.]

As of April 10, 2018, the total amount currently owing under the Program and the RPA is
$5,276,532.89 (which includes: $ 4,867,285 in Program charges and $ 409,247.89 in
“Other Charges”), leaving a balance owing of $1,983,772.17. [Exh. 150, p. 2]

These Program charges are in accordance with the RPA’s requirements. [0530TR:
204:19-206:25 (explaining how charges match with RPA requirements)]

6

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-55161446.

47.

48.

These Program charges are not the final ultimate charges as one claim remains open and
the cell has not been closed. [0530TR:207:1-24] Depending on the ultimate cost of
claims, the ultimate Program charge could range from $3 million to the maximum, not
including other charges. [0530TR:207:25-208:5]

Based upon an internal actuarial analysis, it is expected that Warwick will likely have an
ultimate loss level of approximately $ 2,400,000, resulting in approximately $ 3,600,000
in Program charges (which does not include other charges). [0531TR:232:19-234:19]
Policies were issued as well. The premiums, taxes and assessments to Warwick CA for
its CIC workers compensation polices over the 3 years it was in EquityComp® Program

totaled $ 557,166 [0530TR:201:24-204:2]

The CDI’s Examinations, the Shasta Decision and the Consent Order

49.

50.

51.

52.

Gary Osborne, a captive expert with more than 30 years of relevant experience
[0531TR:319:20-325:12], testified that the Program is a sponsored cell captive
arrangement [0531TR:340:24-341:4, 343:6-16], which is an arrangement long used
throughout the U.S., including California. [05311TR:332:18-333:18; 0604TR:366: 13-20]
Mr. Osborne testified that participation agreements, such as the RPA, are not filed with
insurance departments as an insurance contract, endorsement or rate. [TR0531:342:1-19;
0604TR:366:13-367:5]

The California Department of Insurance (“CDI”) examined the EquityComp® Program
and CIC, the company that writes the W/C insurance policies under the EquityComp®
program, 4 times between 2008 and 2015. [Exhs. 176-179] The CDI and the Iowa
Department of Insurance also examined AUCRA as well. [Exh. 180]

None of these five reports — all of which set forth discussions expressly discussing the

Program - covering 8 years of examinations found that the RPA was required to be filed.

. Two of these examinations, including one specifically directed at ensuring CIC’s

compliance with rate laws, took place after the CDI’s 2011 letter, published by the

WCIRB, in which the CDI raised concerns over the use of “collateral agreements.”

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-551614Tl. REASONABLE CONCLUSIONS FROM THE EVIDENCE

In 2013, Warwick had difficulty finding a WC program due to its poor loss history. To
minimize its costs, Warwick and Willis exhaustively considered all options, including alternative
“Joss-sensitive” options though it had concerns over its ability to prevent and manage losses.
Warwick also considered seeking quotes for its separate operations, but it was more expensive than
quotes that were based upon pricing of it entire operations combined.

In 2013, Warwick had the option of purchasing a one-year guaranteed cost policy through
Liberty Mutual, but it declined to do so because the cost of a policy would be more than $1.1 million
for the 2013-2014 year and much more for each of the two years thereafter. Warwick also had the
option of entering into the Artex Captive Program, but that option required an up-front payment of
nearly $1.3 million in the first year and more if claims experience turned out unfavorable.

In the end, after an exhaustive search and studied analysis that was provided by Willis and, in
turn, was shared by Mr. Sheh to his superiors, Warwick opted to go with the Program because it
offered the opportunity for an overall out-of-pocket cost for three years of insurance coverage and
did not require up-front payments of all premiums and collateral such as the Artex option. Warwick
opted for this loss-sensitive Program though Mr. Sheh had concerns, which he expressed to his
superiors, that Warwick might not have the infrastructure to prevent and manage claims and that
claims could go south requiring payment of the Program’s maximum.

The benefits and costs of the Program were explained in detail through proposal papers, the
Sample Plan Analysis, the RPA and discussions with Warwick and its broker. Warwick and its
broker generally understood the Program and understood that it could perform well if claims were
low. Unfortunately, this did not happen and Warwick now seeks to avoid its contractual obligations.
Warwick should now be required to bear its contractual obligations under the Program.

Ill. ARGUMENT

A. Cross-Claims

1. Cross-Claim_ No. 1 — Breach of Contract (RPA): The Evidence Clearly

Demonstrates a Breach of the RPA’s Payment Obligations by Warwick CA

In order to demonstrate a breach of contract, AUCRA must demonstrate: (1) existence of a

8

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-551614contract; (2) its performance under the contract; (3) Warwick’s breach of the contract; and
(4) AUCRA’s damage as a result of the breach of contract. See Oasis W. Realty, LLC v. Goldman,
51 Cal. 4th 811, 821 (Cal. 2011). Those elements have been clearly established here as follows:

e The RPA was executed by Mr. Sheh on behalf of Warwick Amusement Corporation and
its subsidiaries, including Warwick CA. [Exh. 136]

e In accordance with the RPA, AUCRA established a segregated cell by which Warwick
could share in the underwriting results (i-e., profit-sharing) of the Policies issued through
the Program. [0530TR:126:17-25]

e As of April 2018, Warwick’s obligation under the Program and the RPA is
$5,276,532.89, of which Warwick has only paid $3,292,760.72, leaving a balance
currently due and owing of $1,983,772.17. [Exh. 150; 0530TR:198:10-19]

e In addition to the $1,983,772.17, Warwick owes $289,650 (i.e., $95,181 cancellation fee
and additional capital deposits of $194,499) resulting in a total of $2,273,452.17 that
Warwick owes under the RPA. [Exh. 153; 0530TR:198:20-199:3, 219:15-24]

e Warwick had stopped making payments into the Program since November 2015, thereby
harming AUCRA, [Exh. 150]

Because Warwick has not paid all amounts due and owing under the RPA, it is in breach.

Based upon these facts, judgment should be awarded in favor of AUCRA on this cross-claim.

Warwick CA may contend that it should not be liable for all that is owed under the RPA.

This contention should be rejected as it is jointly and severally liable for all RPA obligations.
Section 1659 of the California Civil Code provides, “Where all the parties who unite in a

promise receive some benefit from the consideration, whether past or present, their_promise is

presumed to be joint and several.” [Emph. added] See also Cal. Civ. Code §1669 (“A promise, made
in the singular number, but executed by several persons, is presumed to be joint and several.”)

As courts have long held, in the absence of evidence “showing a contrary intention” — that is,
an intention that the contract was intended to be joint or to be several but not joint and several — “the
presumption stated in section 1659 [that the contract is joint and several] must_control.” See
Gummer v. Mairs, 140 Cal. 535, 537 (1903) (emphasis added); De Angeles v. Cotta, 62 Cal. App.

9

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-551614691, 696 (1923); see also Kaneko v. Okuda, 195 Cal. App. 2d 217, 227 (1961) (noting that the
presumption of section 1659 “is not conclusive,” but went on to state that “[i]t is rebuttable but
controls in the absence of evidence to the contrary”); Forbes v. Board of Missions, 17 Cal. 2d 332,
338 (1941) (holding that presumption of section 1659 “must control” where there is no evidence to
contrary).

Here, Warwick CA is jointly and severally liable under the RPA. Warwick Amusement
Corporation and its subsidiaries, including Warwick CA, collectively executed the RPA as a
“Participant.” This decision to enter the RPA and the Program was for the collective benefit for
Warwick as a whole since it could obtain less expense W/C insurance as a national account, instead
of separate state ones. [Exh. 74, pp. 2 & 3] In collectively undertaking the obligations of the RPA as
a “Participant,” those obligations are presumed to be joint and several. Civ. Code §§ 1659-1660.

While Warwick will contend that it purportedly allocated internally Program costs amongst
themselves, this is not evidence demonstrating that the Warwick entities intended their obligations
under the RPA vis-a-vis AUCRA would be anything other than joint and several. Without such
evidence, the joint and several liability presumption of Section 1659 controls. See Gummer, supra at
537; De Angeles, supra at 696; Kaneko, supra at 227. To the contrary, again, the Warwick account
was presented on a national basis with the clear intent of obtaining a less expensive W/C option by
combining all of Warwick’s risks together [Exhs. 74 and 111], the account was priced on a national
basis [0530TR:134:16-23; 224:23-225:11], and the account was charged on a national basis [see,
e.g., Exh. 155] To now contend that Warwick CA should only be required to pay only a share of
Program charges is contrary to how this account was presented to and priced by Applied. As such,
the joint and several presumption of Sections 1659 and 1660 apply here to Warwick CA.!

2. Cross-Claim No. 2 — Breach of Contract (CIC Policies): The Evidence Clearly

Demonstrates a Breach of the CIC Policies

' Insofar as Warwick CA may contend that the Court addressed this issue on motion in limine, any such interlocutory
tuling, if applicable, was based upon an incomplete record and is not binding. See Chen v. L.A. Truck Cntr., LLC, 7 Cal.
App. Sth 757, 768-769 (2017) (“[iJn limine rulings are not binding; they are subject to reconsideration upon full
information at trial.”), Cristler v. Express Messenger Sys., Inc., 171 Cal. App. 2d 72, 90 n. 6 (2009), (citing cases from
1988 forward all affirming that i” /imine rulings are not binding and are subject to reconsideration by the trial judge.).

10

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-551614Insofar as Warwick CA seeks a determination that the RPA’s obligations are unenforceable
as to Warwick CA and successfully obtains such a determination, in the alternative, CIC seeks a
determination on its breach of contract cross-claim against Warwick CA for failure to pay all
amounts due under the workers’ compensation insurance policies issued by CIC (the CIC Policies)
for Warwick CA’s California operations. The following facts are beyond dispute:

e CIC Policies were issued to Warwick Amusement Corporation, including Warwick CA,

to cover its California operations from 2013 to 2016. [Exhs. 137, 139 & 141]

e Insurance coverage was in fact provided through the CIC Policies.

e While $557,166 is owed under the CIC Policies for the California only operations.
(0530TR:203:9-204:2]; according to Warwick CA, it has purportedly only paid an
allocated share of $452,862.60 [0529TR:29:15-30:6, 37:7-10]. As such, CIC has been
harmed due to Warwick CA’s failure to pay what is owed under the CIC Policies.

In rejoinder, Warwick CA may contend that it did not agree to the rates and other values used
in connection with the CIC Policies. This contention is disingenuous. As it was required by law,
Warwick CA was obligated to maintain workers’ compensation insurance coverage for its
employees. Cal. Labor Code § 3700. Copies of CIC Policies were in fact delivered to Warwick and.
if it had any objections to the rates therein, those objections could have been made. None were made
to the CIC Policies and its terms. In accepting the benefits of the W/C insurance coverage provided.
under the CIC Policies, Warwick CA cannot now purport to dispute the consideration required for
such coverage. See Civ. Code § 1588 (“A contract which is voidable solely for want of due consent,
may be ratified by a subsequent consent.”); Civ. Code § 1589 (“A voluntary acceptance of the
benefit of a transaction is equivalent to a consent to all the obligations arising from it, so far as the
facts are known, or ought to be known, to the person accepting.”). Further, insofar as Warwick CA
purports to complain about the RPA on the ground that it illegally changes the cost of insurance,
Warwick CA should not be heard to complain that it must then be required to pay what is owed
under the CIC Policies under its terms standing alone and unaffected by the RPA. Even under the
Shasta Decision, upon which Warwick CA relies, the Commissioner required payment of all monies
owed under the W/C insurance policies at issue there. [Exh. 181, pp. 68-69]

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-551614In the final analysis, it is the case that Warwick CA in fact received W/C insurance coverage
and it must be required to pay for the value of such coverage. The best (and only) evidence
submitted by any party of the value of that coverage is set forth in the CIC Policies.

B. Warwick CA’s Claims

1. Claim No. 1 — Warwick CA Has Failed to Demonstrate a Breach of Contract

Warwick CA has failed to demonstrate a breach of contract. As it is undisputed, Program
charges were in accordance with the RPA’s terms and conditions or, on occasion, charges were less
than what was required by the RPA [0530TR:161:19-162:18, 192:3-8; 0531TR:258:25-259:4] in
which case these latter charges did not cause harm to Warwick so as to give rise to a claim.

Warwick CA contends that there is a breach of contract because it has paid too much into the

Program for the payroll and losses applicable to its California operations only. This contention,

however, should be rejected. As an initial matter, the “evidence” provided by Mr. Sheh in Exhibit P-
8 of what he believes Warwick CA should have to pay under the Program if only the payroll and
losses relating to Warwick’s California operations were considered is irrelevant. The Program was
sold and priced on a national basis, not a California one, and the RPA’s rates, which were used by
Mr. Sheh to calculate a California only cost, would not apply. [0530TR:224:23-225:11]

Further and more importantly, Mr. Sheh’s assertion of what the Program would cost if the
Program only concerned Warwick's California operations does not demonstrate a breach of the
RPA. Charges under the RPA are based upon the entire national Warwick account and there is no
dispute that these charges were calculated in accordance with the RPA. In charging what it was
entitled to charge, Applied has not breached the RPA. Insofar as Warwick CA believes that it
should bear less than what it has borne under the RPA, that is an allocation issue that Warwick CA
should presumably raise with its affiliates and parent company, not with Defendants.

Finally, Warwick CA contends that there should be a true up now based upon the terms of
the RRPA. This contention is not based upon a theory of breach of any existing contract. Instead,
this is a curious demand for enforcement of a contract that the parties did not enter. This assertion
does not establish a theory of breach that would support a breach of contract claim.

2. Claim No. 2 — Warwick CA Has Failed to Demonstrate Bad Faith

12

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-551614Though alleged in the Amended Complaint, Warwick CA does not purport to pursue its
alleged claim for bad faith as reflected by its omission in its pre-trial brief. Even if it were to purport
to do so, there is no evidence of any breach of any implied covenant of good faith or fair dealing.

Warwick CA does not contend that CIC had failed to pay workers’ compensation claims.
Instead, the gravamen of Warwick CA’s claims in this action concern disputes over what is owed
under the RPA. As the California Supreme Court made clear in Jonathan Neil & Associates v.
Jones, 33 Cal. 4th 917 (2004), however, a “billing dispute does not, by itself, deny the insured of the
benefits of the insurance policy the security against losses and third party liability.” Jd. at 939.
Since the insured had not been required to sue the insurer for a failure to defend or a failure to pay
claims, the Jonathan Neil court stated that “tort remedies for breach of the implied covenant of good
faith and fair dealing” were “unnecessary to protect the insured’s interests,” concluding no tort

damages in a bad faith claim were unavailable. See id. at 941; see also Progressive West Ins. Co. v.

Sup. Ct., 135 Cal. App. 4th 263, 276 & 279 (2005) (holding that allegations, including “misleading
[the insured] regarding his true obligations owed,” and “unreasonably and in bad faith attempting to
collect... amounts to which [the insurer] is not entitled” did not support a tort bad faith claim.).

In this case, Warwick CA’s claims of bad faith are fundamentally the same as those in
Jonathan Neil and Progressive West. There is no evidence that CIC wrongfully refused to pay
workers’ compensation claims. As in Progressive West, this case is a “garden variety contractual
dispute” for which no tort bad faith cause of action exist. See Progressive West, supra at 276 & 279.

3. Claim No. 3 — Warwick CA Has Not Demonstrated a Fraud Claim

Though alleged in the Amended Complaint, Warwick CA does not purport to pursue its
alleged fraud claim as reflected by its omission in its pre-trial brief. Indeed, counsel for Warwick
CA represented to the Court that they seek to enforce the contract and its fraud allegation concerns
“post-contract concealment ... [i]t has nothing to do with precontract negotiations.” [0523:7:6-14]

It is no wonder. Applied provided extensive disclosures and a sample plan analysis to Willis
and Warwick concerning the Program’s costs and requirements. [See, e.g., Exhs. 79 & 119] There
is no evidence of a false statement. Further, Mr. Sheh admits that he did not even review the RPA
but instead simply relied upon his broker for guidance. [0529TR82:4-24, 84:13-85:25, 90:24-92:1,

13

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-55161493:2-23] As such, there is no justifiable reliance or harm from any representation. Finally, there is
no demonstration of any requisite fraudulent intent by Defendants to support a fraud claim.

As for Warwick’s CA claim that it may pursue a fraud claim based upon post-contract
concealment, this claim is not viable. This claim refers to the cash-flow benefit provided to
Warwick CA during the active term. Specifically, in each plan analysis, Warwick’s obligation under

the RPA — ie., the “Total Pay-in Amount Due Under Your Contract” — is calculated. AUCRA,

however, does not always require all that it is required under the RPA to be paid due to how claims
are developing and, therefore, allows the customer to hold its money even though it is owed under
the RPA. This is reflected through the “Total Pay-In We Are Requiring” as of the Date of the Plan
Analysis. The amount “We Are Requiring” is never more than the amount “Due Under Your
Contract.” [0530TR:161:9-162:21] Warwick CA’s fraud contention concerns its inability to
determine precisely how AUCRA determines “how much less” to charge in any given month.

This claim does not give rise to an actionable fraud claim. First, Warwick CA presented no
evidence of any misleading concealment concerning this issue. To the contrary, Applied disclosed
that the Program provides for cash-flow benefits based upon Warwick’s own loss-experience:

e The Program “[(aJllows for the efficient use of collateral” and that “risk funding is
paid real time on your individual developed loss experience.” [Exh. 79, p. 4]

e “Low pay-in factors with monthly calculations provide up-front savings and easy
cash flow.” [Exh. 79, p. 5]

e Pay in-factor is “based on your expected loss experience and will vary as actual losses
occur.” [Exh. 79, p. 14]

Second, Warwick CA is not harmed by any alleged failure to disclose precisely how it
determines how much less it might require to pay in a particular month than what the RPA requires.
Warwick CA agreed to pay what is owed under the RPA. Insofar as AUCRA permits Warwick CA
to pay less than what is owed in any given month, it is undeniably unharmed.

Third, there is no evidence presented that demonstrates that AUCRA would know that its
refusal to disclose how it goes about determining a cash-flow benefit would be false or that there
was any duty to disclose the proprietary way it goes about making this determination. See Tenet

14

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-551614Healthsystem Desert, Inc. v. Blue Cross of Cal., 245 Cal. App. 4th 821, 844 (2016).

4. Claim No. 4 — Warwick CA Has Failed to Prove Up a Viable UCL Claim

(i) No Standing and No Injury in Fact to Assert a UCL Claim

In order to maintain a UCL claim, Warwick must demonstrate harm and injury-in-fact arising
from the alleged illegality — here, the purported failure to file the RPA with the CDI. See Medina v.
Safe-Guard Prods., Int'l, Inc., 164 Cal. App. 4th 105, 114 (2008) (UCL plaintiff must demonstrate
“injury in fact and has lost money or property as a result” of the conduct underlying the UCL claim);
Hall y. Time Inc., 158 Cal. App. 4th 847, 855 (2008) (same).

The facts and holding in Medina provide compelling guidance. In Medina, the defendant
company was alleged not to have a license to sell insurance in California and to have failed to file its
contracts with the Commissioner. See id. at 113. The plaintiff sued under the UCL for failing to
comply with the Insurance Code. On demurrer, the trial court dismissed the claim and the Court of
Appeal affirmed. In so doing, the Medina court held that the plaintiff did not contend the “coverage
in the first place, or that he was given unsatisfactory service or has had a claim denied, or that he
paid more for the coverage than what it was worth because of the unlicensed status of Safe-Guard”
and such “He hasn’t suffered any loss because of Safe-Guard’s unlicensed status.” /d. at 114.

The same is true here. Warwick CA has presented no evidence that the alleged failure to file
the RPA with the CDI has caused it harm. Warwick CA voluntarily executed the RPA with full
awareness of how the Program worked. There is no evidence that Warwick CA did not receive
exactly what was promised to be delivered as part of this Program. Indeed, as reflected in its pre-
trial brief, Warwick CA now seeks to enforce the RPA’s payment obligations. [WOB, p. 3]

Without any evidence of harm, there is no injury-in-fact or standing to assert a UCL claim.

(ii) The Use of an Unfiled Workers’ Compensation Rate is Not Unlawful
and Only the Commissioner May Disapprove of an Unfiled Rate

Insofar as Warwick CA attempts to avoid its payment obligations under the RPA on the
ground that the RPA was not filed with the CDI, such an attempt is necessarily based upon the
argument that RPA constitutes “rate” or “supplementary rate information,” which is used to
determine “premium” owed for workers’ compensation insurance coverage and, if California law

15

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-551614applies, is governed by the rate filing laws set forth at Insurance Code sections 11735 and 11737.
First, California’s W/C filing laws do not apply to Warwick’s RPA. The RPA was entered
into by Mr. Sheh, on behalf of Warwick Amusement Corporation (both of which are located in
Denver Colorado), and all of its subsidiaries. The Program covers Warwick’s risks across the nation
for which California’s estimated payroll constituted only 5.16%. In connection with entering the
Program, Warwick was assisted by its New York broker and was dealing with AUI’s personnel in
Omaha Nebraska. In light of these facts and the fact that the RPA has a Nebraska choice of law
provision, California’s W/C filing laws should not apply with respect to the RPA at issue here.
Second, even if California law applies, there is no showing that the RPA’s payment
obligations modify the premiums owed under the CIC Policies so as to be subject to California’s
filing laws. As explained by Ms. Ellen Gardiner and Mr. Gary Osborne, the premiums charged
under the CIC Policies are not changed by the RPA and CIC charges and is paid what it is owed in
accordance with its filed rates. [0530TR:122:11-123:5] The fact that the RPA imposes other
obligations that Warwick assumed in order to participate in the Program does not mean, as Warwick
simplistically contends, that the RPA changes CIC Policy rates. Nor can it because the CIC Policies
contain integration clauses that prevent their modification except by a CIC endorsement (for which
the RPA could not qualify as CIC is not even party to the RPA). See Grey v. Amer. Mgmt. Serv., 204
Cal. App. 4th 803, 807 (2012); see also, e.g., Exh 137 , pp. 14 (“It is further agreed that this policy,
including all endorsements forming a part thereof, constitutes the entire contract of insurance.”), p.
49 (“The only agreements relating to this insurance are stated in this policy. The terms of this policy
may not be changed or waived except by endorsement issued by us to be part of this policy.”]
Because the RPA — a contract between the Warwick entities and AUCRA, NOT CIC — does
not alter or modify the CIC Policies, the RPA is not an insurance contract, endorsement, ancillary
agreement or workers’ compensation rate subject to insurer workers’ compensation filing laws.
Third, even if California’s filing laws apply and the RPA were deemed an unfiled workers’
compensation rate, there is no unlawful conduct because an unfiled workers’ compensation rate is
not unlawful. An unfiled workers’ compensation rate is nevertheless enforceable unless and until
the Commissioner initiates a rate disapproval hearing to disapprove of that unfiled rate. See Ins.

16

DEFENDANTS’ POST-TRIAL OPENING BRIEF
Case No. CGC-16-551614Code § 11737(a) (permitting, not mandating, the disapproval of an unfiled rate by the
Commissioner) & (d) (requiring a rate disapproval proceeding noticed and prosecuted by the
Commissioner to disapprove an unfiled rate); see also Shasta Linen Supply, Inc. v. Applied
Underwriters, Inc., No., CV 2:16-158 WBS AC, 2016 U.S. Dist. LEXI