On June 6, 2016, the Market Review Committee of Commonwealth Automobile Reinsurers (“CAR”) reconvened the April 7 hearing on the Calianos Insurance Agency’s (“Agency”) request for review of Commerce/MAPFRE’s (“Commerce”) practice of chargebacks against commissions for premiums paid at an agency that are not received within ten days of the agency reporting the payment to Commerce. See Agency Checklists April 26, 2016 article, “CAR Hears Calianos the Agency Complaints Against Commerce for Withholding Commissions.”
At the April 7 hearing, all parties acknowledged that the initial five commission chargebacks transactions in dispute had been resolved by the payment of Commerce and that pending further action at CAR, Commerce had agreed to discontinue the netting of commissions owed to the Agency because of premium payments made by insureds and allegedly forwarded by the Agency, that Commerce might claim it had not received.
Continued hearing on commission back-charges and Commerce’s investigation of Agency
The reconvened hearing on June 6th then addressed the remaining two matters involving allegations made by the Agency as to:
(1) whether approximately $9,000 in commissions due the Agency for a period that extends from 2008 through 2016, were being improperly withheld by the Commerce Insurance Company; and;
(2) whether Commerce had initiated an improper investigation as a result of the Agency’s request for review.
Agency claims Rule 37 bars Commerce “paid at agency” chargebacks
The Agency’s primary claim began with the inception of the Massachusetts Automobile Insurance Plan (“MAIP”) in 2008. Although the argument of the Agency is not entirely clear, it seems to follow from the fact that the Agency has no contract with Commerce. The Agency’s commission for assigned risk business are set by MAIP Rule 37. This rule simply sets the commission rate payable and does not provide for chargebacks.
The Agency states that since 2008, Commerce has charged back the Agency for unreceived premiums payments submitted to the Agency by assigned risks. In many cases, insureds would deliver checks or money orders payable to Commerce to the Agency. The Agency simply reported to Commerce that they had a payment for Commerce. After reporting the receipt of the check or money order, the Agency would forward by mail the check or money order to Commerce.
Commerce, however, would note the amount reported by the Agency in the insured’s policy file. If the insured’s check or money order that the Agency had reported did not appear, for whatever reason, on the insured’s premium account at Commerce within ten days, Commerce would charge the full amount of the insured’s check or money order against the Agency’s commissions.
During the period from 2008 to the present, the Agency claimed approximately $9,000 in commissions taken by Commerce for such reported payments that were allegedly never received or, as alleged by the Agency, never properly posted by Commerce.
Commerce’s “paid at agency” set-off practices applied to all agencies, voluntary and assigned risk
Commerce did not dispute that the Agency may have had, at least, $9,000 in commission set-offs for premiums reported “paid at agency” but not received by Commerce.
Commerce’s Vice President and Chief Regulatory Counsel, Barbara Law, submitted to the committee that Commerce’s commissioning practices were:
- not unique to the Calianos Agency but common to the industry,
- were in place prior to and throughout the MAIP,
- apply to both voluntary producers and assigned risk producers, and
- protects policyholders from undue cancellations and coverage gaps.
Attorney Law also submitted that Commerce’s standard practices on agency reported payments is to:
- Process paid at agency transactions first by removing any pending cancellation from the policy upon notice from the agency that a payment has been collected.
- The Company then allows a ten-day grace period for payment to be received.
- The MAIP policy is credited with the payment the earlier of the date that the payment is received or on the tenth day after being reported.
- If payment has not been received as of day ten, a commission transaction is processed to deduct from the next scheduled monthly commission payment a setoff reflecting the debt for the unremitted premium amount.
- If payment is eventually received, the setoff transaction is reversed and the money is paid to the agent.
- If payment is not received, the setoff transaction stands.
- In all instances the payment credit to the MAIP policy stands.
She also indicated that the Agency has been well aware of the practices and had objected to Commerce about the practices starting as early as 2011 but had not a request for review over the practice itself until 2016.
Committee rules Agency’s request for review too late
The Agency’s delay in filing a request for review proved fatal at the Market Review Committee.
Rule 40 of the MAIP allows any licensed producer “aggrieved by any unfair, unreasonable, or improper practice of the MAIP or another Member with respect to the operation of the MAIP [to] request a formal review and ruling by the Governing Committee on the alleged practice. However, the rule also states:
The request for review must be made within 30 days after the date such person knew of the alleged practice.
Commerce argued that the Agency had had actual knowledge of Commerce’s “paid at agency” chargeback practices for some years but took no action.
In support of its argument that Commerce produced a number of prior communications and complaints by the Agency including:
- The monthly reports issued to the Agency entitled, “Paid at the Agency Adjustment for Commissions.” The reports covered the period between April 2008 through February 2016. Commerce noted that this was the same report that the Agency provided in support of its request for review as it related to the five January 2016 transactions that were the subject of the original complaint.
- A prior MAIP request for review by the Agency against Commerce, dated September 23, 2011, alleging “unauthorized taking of commissions,” for a set off on a particular money order premium payment not received by the Company.
- A MAIP Complaint by Commerce against the Agency, dated January 27, 2014, alleging “Agent guaranteed payment for $100.00 on 12/2/13. We have not received the physical payment (money order) for $100.00 yet. $100 is still due in order to reverse [back] the agent’s commissions.”
- MAIP Complaint by the Agency against Commerce, dated February 6, 2014, alleging that Commerce, “failed to pay or offset agent commission thereby failing to pay full commission … Instead Commerce decided to offset the agents [sic] commission. There is no provision for this in CAR rule or Mass law. A lost payment on the commerce’s [sic] behalf does not give this company a reason to abscond with an agents [sic] commission.”
Based on the evidence, the committee agreed that the Agency knowledge of Commerce’s commissioning practices was apparent for an extended period of time but that the Agency had never challenged the alleged commissions owed during that time period.
The committee then, without further discussion, voted that the request for review had not been made within thirty (30) days after the date the Agency knew of the alleged practice and, therefore, the matter of commissions owed the Agency for the period 2008 and 2016 was not properly before the committee.
Committee finds Commerce’s commission setoff practices not unfair, unreasonable or improper
After ruling the Agency’s complaint going back to 2008 untimely, the Committee then reviewed whether Commerce’s commissioning practices were inconsistent with CAR Rules or manuals and whether the practices could be deemed unfair, unreasonable or improper. Following some further discussion, the committee voted, with two abstentions and one recusal, that Commerce’s commissioning practices were neither unfair, unreasonable nor improper.
Investigation of Calianos the Agency
Finally, the committee discussed the matter of whether Commerce had initiated an improper investigation of the Calianos Agency. Mr. Calianos contended that Commerce initiated the investigation of his agency as a result of the filing of his request for review. Commerce contended that their decision to initiate an investigation preceded the request and was due to irregularities in the premium payment processing and handling with insureds represented by the Agency. Following further discussion, the committee voted, with one abstention and one recusal that Commerce’s investigation was neither unfair, unreasonable nor improper.
The Agency to appeal Market Review Committee decision
After the final of the three votes, in an exchange between the committee chairman and the Agency’s owner, Mr. Calianos, over procedure, the Committee chairman indicated that he thought tht Mr. Calianos would be appealing the committee’s decision. Mr. Calianos advised in the affirmative that there would be an appeal.
Under CAR Rules, the Agency’s appeal would initially be heard a CAR Governing Committee Review Panel consisting of three member of the CAR Governing Committee entitled to vote. An adverse decision by the Review Panel can be appealed to the Commissioner of Insurance.