Berkshire Accused of ‘Siphoning’ Funds in Workers’ Comp Suit

  • Courier alleges insurer diverted premiums, cheating workers
  • New York company calls Berkshire plan ‘reverse Ponzi scheme’

Berkshire Hathaway Inc. duped a New York bicycle courier company into paying for a workers’ compensation plan that threatens to shortchange injured workers and businesses, according to a lawsuit filed Friday.

The suit comes as Berkshire’s Applied Underwriters business faces scrutiny over its workers’ compensation policies. Regulators in California, Wisconsin and Vermont have criticized the policies and banned further sales after saying they skirted state approvals. The company says that the contracts were designed to share profits with clients.

In the lawsuit, Breakaway Courier Corp. accused Omaha, Nebraska-based Berkshire of creating what it called a “reverse Ponzi scheme” that requires workers’ compensation customers to cover each other’s losses. According to the complaint in state court in New York, companies are led to believe their premiums are being paid into “protected cells” and will eventually be returned to them.

"Instead, Berkshire Hathaway illegally siphons off premiums,” leaving “employers and injured workers without the funds that New York State requires to be available to cover losses,” according to the complaint.

Breakaway is seeking to recover the premiums it paid, at least $863,048, as well as other damages.

Berkshire Chief Executive Officer Warren Buffett and Chief Financial Officer Marc Hamburg didn’t immediately return telephone or e-mail messages for comment on the suit.

California’s insurance commissioner ruled against Berkshire in June over workers’ compensation policies after determining that the company duped a small business, Shasta Linen Supply, and circumvented a review of rates. Earlier this month, the company agreed to stop selling the policies in dispute in California. The regulator said the Berkshire businesses charged customers’ rates which hadn’t been approved by the regulator.

The case is Breakaway Courier Corp. v. Berkshire Hathaway Inc., 654806/2016, New York State Supreme Court, New York County (Manhattan).

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