NU Online News Service, Feb. 28, 3:49 p.m. EST

California has launched enforcement action against two units of Zurich American Insurance Company related to alleged use of a workers’ compensation insurance agreement known as a “large deductible agreement” without obtaining prior approval.

The dispute deals with a provision of the contracts that require arbitration of disputes in Illinois, where Zurich is domiciled.

The California Insurance Code requires submission of workers’ compensation insurance policy forms and endorsements to the department and to the Workers’ Compensation Insurance Rating Bureau for review to ensure they comply with California law, according to Adam Cole, California Insurance Department general counsel.

The large deductible agreements issued by the Zurich companies contain fundamental policy terms regarding payment, expenses, collateral, default, arbitration, choice of law and other matters, Cole says.

“Despite having key terms, the Zurich companies did not submit the agreements for review,” he notes.

Zurichsays it is seeking to resolve the issue.

“We are currently reviewing the enforcement action and will look to resolve with the Department any concerns contained therein,” says Steve McKay, media and public relations director for Zurich in North America and the Zurich American Insurance Company.

Cole says California law provides that policies that are not submitted shall not be issued. “The department’s action seeks an order requiring theZurichcompanies to immediately cease issuing agreements that have not been filed for review,” he says.

A statement from the Department of Insurance says that if the Zurich companies violate such an order, they could be suspended or barred from transacting further business inCalifornia.

The administrative-law action also seeks an order that large deductible agreements that the Zurich companies issued in disregard of the Insurance Code may not be enforced by Zurich.

“Whatever the insurer’s motive, the effect of evading the department’s review is that Zurich will not be permitted to enforce the agreements,” Cole says. “Workers’ compensation policies are critical to California employers and employees, and the department will not permit insurers to issue policies or endorsements that we have not assured are in compliance with California law,” he states.