Contractors Object to California’s Plan to Rehabilitate Majestic

By | June 6, 2011

Former members of the self-insured workers’ compensation program Contractors Access Program of California, which was managed by now defunct Majestic Insurance Co., have filed a formal objection to the California Department of Insurance’s Majestic Insurance rehabilitation plan.

The California Department of Industrial Relations declared CAP in default in November 2010 due to insufficient funds. Then in April 2011, Majestic was placed into conservation by a court order. California Insurance Commissioner Dave Jones simultaneously filed a motion seeking approval for a rehabilitation plan to protect Majestic’s policyholders and claimants from loss due to the conservation.

Under the rehabilitation plan, Majestic’s insurance liabilities and certain assets were to be transferred to AmTrust North America Inc., which will assume responsibility for administration and payment of all policyholder claims under Majestic’s policies.

According to the formal objection, Mark Tanner Construction Inc., Doc Gelso Construction Inc., Mt. Lincoln Construction Inc. and Sierra Paint & Chemical Inc. were members of CAP from 2005 to 2009. They believe Majestic’s actions caused CAP to fail, and that the state DIR and Department of Insurance failed to take appropriate legal actions.

“If the conservator were to go after the money trail, these objections posit that the reorganization would be unnecessary,” the objection states, noting the DOI’s rehabilitation plan.

The plaintiffs say Majestic owes a duty to CAP members to provide the reinsurance advertised and to reimburse CAP and its members for the unearned premiums that have been transferred to parent CRM Holdings.

“As it is now structured, the CAP members will be possibly held liable for the wrongdoing of Majestic Insurance Co. and the individuals and entities who profited from the Ponzi-type scheme; Amtrust will benefit significantly without assuming any detriment; and the state of California will rid itself of an embarrassment, which, if the regulatory bodies had done their jobs, would never have arisen,” the objection states.

The plaintiffs believe Amtrust has been involved in Majestic’s business activities since at least 2008, yet the extent of involvement is not known.

“The rehabilitation agreement does not account for the pending litigation by contractors and others in California and the obligations of Majestic Insurance Co. to former members of CAP,” they said, objecting to excluding Amtrust from any of Majestic’s liability. They requested the DOI amend the agreement to account for some recovery of non-policyholder claims.

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Insurance Journal West June 6, 2011
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