Applied Underwriters, a workers' compensation insurer, was fined $3 million by the state Department of Financial Services on Thursday for bundling side agreements with its products that forced small businesses to pay more than under similar workers' compensation plans.

The company, which was owned by Berkshire Hathaway until last month, was accused by the state regulator of including separate agreements in their insurance products that weren't approved by the agency.

Those side agreements, called “Reinsurance Participation Agreements,” were required by the company for businesses to buy alongside its workers' compensation insurance, according to DFS. That drove up the cost of the insurance product for businesses, who would have paid less under similar plans.

DFS Superintendent Linda Lacewell said the fine against Applied Underwriters was intended to protect small businesses, which she said make up the majority of companies in New York and employ more than half of the state's private-sector workforce.

“DFS is committed to protecting all consumers, including our small business owners and today we are holding Applied Underwriters responsible for illegally operating outside of the Department's oversight to sell a complex product to hundreds of New York small and medium-sized businesses,” Lacewell said.

Applied, according to DFS, presented its formula for calculating the costs of the RPAs to consumers in a misleading and confusing way. Under the formula, policy fees could be increased with the first few claims to levels higher than what would be paid under a typical model, the agency said. 

That resulted in employers who purchased the coverage to pay more than they would have under the workers' compensation policies alone, according to DFS.

The general counsel for Applied Underwriters Jeffrey Silver, is listed as director of the Insurance Federation of New York. A message left with Silver for comment on the announcement from DFS was not immediately returned Thursday.

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