Blue Lake Rancheria Business Entity Sued by Washington Insurance Commissioner

Here is the complaint in Kriedler v. Mainstay Business Solutions (W.D. Wash.):

Kriedler Complaint

An excerpt:

7. Cascade National at all relevant times was a domestic stock insurance company holding a Certificate of Authority to operate in the State of Washington as a property and casualty insurer pursuant to Chapter 48.05 RCW. Cascade National also held a license issued by the State of California Department of Insurance to write workers’ compensation insurance policies for coverage in California, subject to the insurance laws and regulations of California.
8. Mainstay was at all relevant times engaged in business as a professional employer organization (“PEO”) in the State of California. A PEO, also referred to as a labor contractor, provides human resources/personnel services to its clients who are typically small to medium-sized businesses. The PEO technically “employs” its clients’ workforces who continue to work at the clients’ businesses. The PEO provides various human resources and personnel services on behalf of its clients, including payroll and benefits administration, health and workers’ compensation insurance programs, and other similar services. Providing workers’ compensation insurance coverage for the clients’ workforce is a major component and marketing factor for a PEO to obtain clients because the PEO can often obtain more favorable rates because it is able to pool many clients’ workforces into a substantially larger pool of employees.
9. On July 1, 2004, Cascade National and Mainstay entered into a written letter agreement (the “Agreement”) by which Cascade National would provide statutory workers’ compensation insurance coverage to Mainstay in the State of California for the clients and workplace employees of Mainstay’s PEO operations.
10. The workers’ compensation insurance provided to Mainstay by Cascade National is a high-deductible policy. The deductible was $1 million per claim. Under the Agreement, Cascade National is required to initially pay all claims to injured workers from the first date of injury and the first dollar of coverage, and Mainstay is required to repay or reimburse Cascade National for all those claims payments within the deductible amount. To secure performance by Mainstay, a $500,000 deposit and a Letter of Credit in the amount of $1,500,000 were provided by Mainstay, among other requirements.
11. The Agreement also requires Mainstay to remit to Cascade National on a weekly basis various sums for the “deductible premium,” taxes and assessments, and for incurred claims, including paid loss and loss adjustment expenses and estimated ultimate unpaid loss and loss adjustment expenses.
12. The Agreement further provides that Cascade National, in its sole and complete discretion, is to determine the amount of the reserves to be paid over to Cascade National by Mainstay for losses and loss adjustment expenses. The required reserves are expressly defined in the Agreement as the greater of the estimated ultimate unpaid loss and loss adjustment expenses as calculated by Cascade National’s appointed actuary, and any applicable loss and loss adjustment expense reserves required by a regulator. Under the Agreement, Mainstay is required to pay to Cascade the full amount of these calculated, required reserves.
13. The workers’ compensation insurance policy coverage provided by Cascade National became effective on July 1, 2004. On March 28, 2005, Mainstay gave a “notice of cancellation” of the policy retroactively effective on March 1, 2005. The policy covers all workers’ compensation injuries which occurred during that policy period, including all on-{1479039.DOCX;} going expenses, claims and costs arising from those covered injuries which are incurred after March 1, 2005 and for as long as the claim remains open. Cascade National is continually obligated to pay all ongoing expenses and losses for every worker injury which occurred during the policy period; and Mainstay is continually obligated to pay and reimburse Cascade National for all such claims. The obligation of Mainstay to pay Cascade National under the Agreement continues as long as Cascade National is required to pay out on workers’ compensation claims for injuries which occurred during the policy period.
14. Cascade National has provided all the insurance coverage as agreed and required under the Agreement. Cascade National has paid, and during receivership has continued to pay and be obligated to the California Insurance Guaranty Association for all claims payments for the Mainstay coverage. Over the course of the coverage, the amount charged and payable by Mainstay to Cascade National totals $18,887,657, including the calculated premium plus paid losses (i.e. paid losses and loss adjustment expense), and reserves (i.e. unpaid losses and loss adjustment expense) as of the last actuarial analysis as of December 31, 2011. Mainstay has paid or been credited with $14,204,128, leaving a balance due from Mainstay to Cascade National of $4,683,529 as of the last actuarial analysis as of December 31, 2011.
15. Receiver has made numerous written demands to Mainstay for payment pursuant to the Agreement and has provided detailed itemized support and actuarial analysis supporting the amounts due and owing beginning in mid-2009 through 2011. The amount due as of the actuarial study as of December 31, 2011, is now $4,683,529, which amount consists of (a) $155,981 in Stipulated Deductible Premium; (b) $6,333,131 in Paid Losses and Allocated Loss Adjustment Expense (“ALAE”); (c) $703,613 in Case Reserves Losses and ALAE; (d) $720,264 in Unallocated Loss Adjustment Expense (“ULAE”) Reserves; and (e) a credit or surplus of $3,229,460 for Incurred But Not Reported (“IBNR”) Losses and ALAE. 16. Demand has been made to Mainstay and it has failed to pay over to Cascade National the on-going and continuing amounts due as required under the Agreement.