Berkshire Hathaway Inc. duped a NY bicycle courier company into paying for a workers’ compensation plan that threatens to shortchange injured workers and businesses, according to a lawsuit.
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Billionaire investor Warren Buffett’s Berkshire Hathaway conglomerate has been sued by a New York City bike courier company for allegedly scheming to steal insurance premiums in a “reverse Ponzi scheme”. The company says the contracts were created to share profits with clients and that the contracts are not insurance and thus not subject to regulators’ review. Breakaway said the discounted Berkshire package it bought in 2009 was really an expensive “reinsurance” program that required employers to cover each other’s losses.
The New York allegations focus on Reinsurance Participation Agreements – complex derivative instruments the lawsuit says shift all risk of losses from worker injuries back onto those who are insured.
Berkshire’s Applied Underwriters unit has been facing criticism over its workers’ compensation policies, including some that have been banned in California, Vermont and Wisconsin.
Berkshire representatives did not immediately respond to a message seeking comment on the legal complaint, which seeks at least $18 million in damages and the return of all insurance premiums paid.
The complaint was filed late last week in New York Supreme Court by Breakaway Courier Systems, which has about 300 employees, according to Reuters.
It shines a spotlight on a lesser-known part of Berkshire’s insurance operations, which also include Geico vehicle insurance and General Re reinsurance.
Breakaway alleges the Omaha, NE-based Berkshire of “siphoning” premiums through an assortment of illegal shell companies, with premiums being directed to unlicensed out-of-state insurers, Reuters notes.
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Earlier this month, Applied agreed to stop selling the policies in dispute in California, although it filed a lawsuit challenging the regulators’ findings. The move came after the California insurance commissioner said a policy sold to a linen supply company resulted in hefty costs for the small business.
