On April 7, 2016, the eleven-member Market Review Committee of Commonwealth Automobile Reinsurers (“CAR”) met to hear the complaint of the Calianos Insurance Agency against the Commerce Insurance Company (“Commerce”).
This appeal was previously the subject of an Agency Checklist article on April 5, 2016 entitled, “CAR Market Review Committee to Hear Assigned Risk Commission Setoff Dispute.” (Copy of article appears below).
Appeal on commission offsets resulting from alleged misplaced payments
The agency’s appeal to CAR alleged that Commerce had wrongfully set off commissions due the agency for payments on assigned risk policies after the agency reported receipt of policy payment and mailed the payment to Commerce. In certain cases, the agency alleged that Commerce misplaced or misapplied the payments and then charged back the agency for the missing payment by offsetting the payment against the agency’s commissions.
Market Review Committee finds initial complaints on commissions resolved
The hearing of April 7, resulted in no direct action based on the allegations brought by Jason Calianos of the Calianos Insurance Agency regarding Commerce’s of missing, lost, or misplaced premium payments collected at the agency being deducted from the agency’s commissions.
Initially, the Market Review Committee focused on the five specific instances that made up the original complaints made by the agency where Commerce had set off premium payments against commissions. All parties acknowledged that these specific transactions had been resolved by the payment of Commerce and by the further agreement of Commerce to discontinue the netting of commissions owed to the Calianos Agency from premium payments collected by the agency that had not been received by the company.
Calianos Agency alleges improper investigation by Commerce of the agency
The Calianos Agency also raised before the Market Review Committee the issue that Commerce had allegedly conducted an improper investigation of the agency.
The details of the agency’s charges do not appear in the record of the Market Review Committee’s minutes. However, the minutes do state, “With respect to the agency’s claim that the company had initiated an improper investigation, the Committee questioned CAR’s jurisdiction in the matter.”
Hearing left open for 45 days for submissions on other commissions withheld along with the investigation of the agency by Commerce
While there was agreement that the original commissions withheld had been paid along with Commerce’s agreement to suspend any further withholding of commissions pending further action by CAR, the Calianos Agency also alleged that there were additional commission payments that Commerce had systematically withheld since 2008.
The Committee agreed that Mr. Calianos should provide further documentation on the issue, and that Commerce be allowed further time to respond to the claims. Accordingly, the Committee voted unanimously (with two recusals) to keep the record open for an additional 45 days to allow the parties to address the matters involving the alleged withholding of commissions from the period between April 2008 and April 2016.
On the allegations of Commerce’s improper investigation of the Calianos Agency, the Committee requested that Mr. Calianos provide additional documentation to facilitate further discussion and to allow the Committee to consider the agency’s request for a determination regarding the alleged improper investigation by Commerce.
Commerce’s request for ruling by MAIP Steering Committee or CAR Ad Hoc Committee endorsed
As detailed in Agency Checklists’ prior article on the Calianos Agency’s appeal, Commerce responded to the appeal arguing that the MAIP Steering Committee of CAR should determine whether an assigned risk carrier has the right to make a set-off against commissions late or unreceived premiums where an assigned risk producer had received the money from an insured.
Mr. Calianos, representing the Calianos Agency, argued to the Market Review Committee that Commerce was attempting to influence the outcome of the Market Review Committee’s deliberations by suggesting that a broader discussion of the topic be referred to the MAIP Steering Committee.
However, the Market Review Committee agreed with Commerce that the issue of whether an assigned risk carrier has the right to net commissions from assigned risk producers, whose payments are not received in a timely manner, should be referred to an ad hoc committee.
Prior article April 5, 2016 of Agency Checklists
CAR Market Review Committee To Hear Assigned Risk Commission Setoff Dispute
The Calianos Insurance Agency, a Roxbury agency established in 1955, will appear once more before the Market Review Committee of Commonwealth Automobile Reinsurers. The complaint filed by the Agency, and scheduled for hearing on April 7, 2016, at 1:00 P.M., complains that with regard to assigned risk business, the Commerce Insurance Company has withheld commission payments alleging that the Agency has guaranty checks or money orders issued by its insureds.
Agency’s prior CAR appearance led to a Division of Insurance decision
The Agency’s prior appearance before CAR’s Market Review Committee was initiated by Safety Insurance, in which the insurer sought to revoke the Agency’s commercial auto assignment. That hearing resulted in CAR revoking the Agency’s assignment and decertifying the Agency as an assigned risk producer.
The Agency appealed and ultimately won a complete reversal of CAR’s decision, as well as a rebuke of CAR’s decision-making process, from the Division of Insurance. See, Agency Checklists, December 13, 2013, “In A 46 Page Decision, Mass. DOI Reverses Calianos Agency’s ERP Cancellation and ARP Decertification by CAR.”
In the present case, the Agency filed for a hearing before the Market Review Committee against Commerce Insurance.
Claim that Agency guaranteed payment by accepting insured’s check payable to Commerce
The Agency’s allegations, contained in it request for review states that the Agency accepts payments from its insureds, on behalf of Commerce Insurance, through checks or money orders “made payable directly to Commerce Insurance.” As part of its procedure, the Agency calls Commerce notifying it that the Agency has received a money order or check for payment, as the case may be. The Agency place all checks received in a daily log and mails the checks directly to Commerce by “US Mail in a timely manner.”
As alleged by the Agency, when Commerce, has misplaced or misapplied payments or the Post Office has failed to deliver the mail promptly, Commerce has set-off the amount of the payment against the commissions due the Agency, “unjustly claiming that the acceptance of a money order or check made directly to them [Commerce] constitutes a guaranty of payment.”
Agency seeks Market Review Committee decision that Commerce “cease and desist”
The Agency Request for Review requests that the Committee rule, “…that all commissions that have been withheld be promptly paid to the agent and that this practice cease immediately and in the future.”
The Agency cites MAIP Rule 37(c) that the commission compensation must be in accordance with the commission schedule set forth in the rule and that Commerce does not, therefore, have any right of set-off the amount of the payment against the commissions due the Agency. The Agency further claims that no CAR rule “allows or even suggests” that an assigned risk carrier can withhold commissions as a guaranty against payments, where the payments have been accepted payable to the insurance company.
Commerce claims appeal is moot but MAIP Steering Committee should set policy
Commerce’s response to the Agency’s appeal to CAR, circulated by CAR on April 4, 2016, asserts that the Market Review Committee has nothing to decide. According to Commerce’s submission, “all commission dollars due the Agency for business written … have been paid. Therefore, according to Commerce, “… there is no ongoing dispute to be resolved by the Market Review Committee.”
Instead, Commerce argues that if the Agency is now essentially seeking an advisory opinion regarding “the right of set-off in [this] situation, that issue should be referred to the MAIP Steering Committee for consideration and appropriate action.”
Commerce’s response continued, notwithstanding the company’s mootness claim, to show the transactions that led to the Agency’s commissions being applied to the insured’s policy.
On one insured’s reported payment of $1,118, Commerce eventually received the insured’s payment and credited the amount of the payment back against the Agency’s withheld commissions. As for the remaining withheld balance of $879.88, Commerce returned this amount to the Agency on March 29, 2016.
In its final argument, Commerce advised that it would, “…refrain from withholding funds from the Agency’s commissions pending further developments regarding that right at C.A.R.” and reiterated that it believed that the MAIP Steering Committee should “explore” and “provide further direction to the industry regarding the right of set-off in such situations.”
Agency Checklists will be following this issue and will report if any decision comes out of this hearing allowing or prohibiting this type of commission set-off.