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California subpoenas U.S. Life Insurance Co. over workers comp

The California Department of Insurance "DOI" has issued subpoenas to the United States Life Insurance Co., of New York City, to investigate why the company wants to get out of a reinsurance contract it has with a large California workers compensation company.

U.S. Life executives had been ordered to appear as witnesses before the DOI. The New York-based life insurer is trying to get out of a contract it has with a "large California domestic workers compensation specialist," according to Norris Clark, deputy commissioner of financial surveillance for the DOI. Clark would not reveal the California insurer's identity.

Clark says U.S. Life wants to back out of the deal — a $200 million to $400 million contract signed in May 1998 - to provide reinsurance to the California workers comp company. Reinsurance is insurance that insurance companies buy in order to cover claims they may have to pay out.

U.S. Life says that the California company did not disclose prior loss experience, which will impact the amount of money U.S. Life is required to pay out. Clark says that U.S. Life has not refused to pay any claims yet, but it seeks to get out of the contract.

"U.S. Life is a relatively new entrant into this business, and its commitment to this segment of the California market has recently come into question," says Clark. Clark says that the insurance commissioner will review information gathered at the hearing and determine the next step.

If U.S. Life gets out of the contract, it is unclear how the California company's ability to pay workers comp claims would be affected.

James Corcoran, an executive vice president for U.S. Life, says the company will cooperate fully with the DOI's requests. "This not a big deal for us," Corcoran says. "We'll show up and be cooperative."

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