On June 22, 2016, the Market Review Committee of Commonwealth Automobile Reinsures (“CAR”) voted to uphold the cancellation of Rapo & Jepsen Insurance Service’s (“Rapo & Jepsen”) exclusive representative producer (“ERP”) contract for Commercial Auto by Arbella Mutual Insurance Company (“Arbella”).
June 22 hearing anticlimactic as Rapo & Jepsen only appears through counsel
The on-going contract cancellation proceedings at CAR’s Market Review Committee that finally resulted in the Market Review Committee upholding Arbella’s cancellation of Rapo & Jepsen on June 22, 2016, has had numerous charges and countercharges as documented in Agency Checklists’ articles of May 3, 2016, “Mass. Agency Appeals Arbella Cancellation For Alleged Premium Fraud Scheme;” May 10, 2016, “Arbella Filing Seeks To Prove Its Claim Of Premium Fraud Against Rapo & Jepsen;” and May 17, 2016, “Arbella Presents Its Fraud Claims At CAR Against The Rapo & Jepsen Agency” and June 21, 2016, “Arbella Alleges New Evidence That Key Witness Sent To Brazil by Rapo & Jepsen.”
However, the June 22 hearing moved to a relatively quick resolution, as Rapo & Jepsen only appeared through its lawyer, Joshua Lewin of Bowditch & Dewey. No one else appeared on behalf of Rapo & Jepsen.
Rapo & Jepsen requests continuance claiming procedure tainted by CAR’s counsel conflict of interest
Attorney Lewin first argued the grounds that Rapo & Jepsen claimed required a continuance of the committee’s hearing to avoid the June 22 proceedings being tainted by a prejudicial conflict of interest between Rapo & Jepsen and CAR’s counsel, Morrison, Mahoney.
Attorney Lewin’ arguments were based upon his prior communication to CAR on June 15, and June 16, as well as his demands directly to Morrison, Mahoney that they cease acting as CAR’s counsel in the proceedings involving Rapo & Jepsen’s commercial ERP contract cancellation by Arbella.
Attorney Lewin represented to the committee that Morrison, Mahoney has represented Rapo & Jepsen for over seventeen years for litigation and for general corporate advice. However, the main basis of the conflict, Attorney Lewin claimed, was that Morrison, Mahoney had specifically advised Rapo & Jepsen with regard to the practices that involved the setting up of corporations and trust for insureds as well as the charging of fees by Rapo & Jepsen.
After continuance denied, Attorney Lewin advises committee he has no authority to proceed
Attorney Lewin requested the committee to postpone the hearing until new CAR counsel’s appointment took effect on July 1, 2016. He argued that continuing the hearing until Morrison, Mahoney had ceased acting as CAR’s counsel would avoid the conflict that Rapo & Jepsen alleged existed.
However, the committee voted to proceed with the hearing based upon Morrison, Mahoney having previously responded to Attorney Lewin that there was no conflict.
When the chairman of the committee then asked Attorney Lewin to proceed to the merits, Attorney Lewin advised the chairman and the committee that he had no authority to proceed. Instead, Attorney Lewin advised the committee that Rapo & Jepsen would appeal the decision at CAR and in the Superior Court seeking to set aside the committee’s action.
Committee proceeds and hears short recap of charges from Arbella before voting
At the request of the committee, Attorney Roberta Fitzpatrick briefly recounted the evidence that had already been presented and heard by the committee.
The major point made by Attorney Fitzpatrick was that Rapo & Jepsen had, based upon the evidence, set up a scheme to circumvent the statutory restriction in CAR’s enabling statute, G.L. c. 175, § 113H, that specifically excludes from the residual market when:
(2) Any person who usually drives the motor vehicle does not hold or is not eligible to obtain an operator’s license
Attorney Fitzpatrick suggested to the committee that the evidence showed that Rapo & Jepsen had simply violated this statute and its contract with Arbella by creating sham businesses for the purpose of obtaining commercial insurance from individuals who were not eligible for commercial insurance and, in many cases, were not eligible for any automobile insurance at all for lack of a valid Massachusetts license.
Committee votes separately on each charge
More than half of the hearing time consisted of the committee separately discussing each of the individual charges in Arbella’s March 2, 2016 cancellation letter
The committee then pursuant to the procedures set up after the Division of Insurance’s Calianos decision involving the cancellation of commercial ERP contracts separately discussed and voted on each of Arbella’s charges against Rapo & Jepsen.
The findings of the committee on the charges appear in the following table:
|Table of charges and rulings on Rapo & Jepsen cancellation|
|Arbella’s stated grounds for cancellation under Rule 14B alleging that Rapo & Jepsen did not:||Market Review Committee decision on charges:|
|c. Refrain from engaging in fraudulent activity in connection with the business of Motor Vehicle Insurance;||Violation found|
|e. Provide a reasonable and good faith effort to verify the information provided by the applicant, including rating and licensing data;||Violation found|
|h. Comply with written procedures supplied by the Servicing Carrier for processing claims, remitting premiums and requesting coverage;||No finding|
|k. Notify the Servicing Carrier of any suspected fraud;||Violation found|
|1. Cooperate with the Servicing Carrier during audits and investigations;||No finding|
|n. Order only those coverages from the Servicing Carrier that are requested by the insured and for which the insured is eligible;||Violation found|
|p. Conduct all monetary transactions with the insured and the Servicing Carrier as required by the Rules of Operation and the ERP contract;||No finding|
|r. Retain the necessary documentation of Servicing Carrier transactions in accordance with the Manual of Administrative Procedures;||Violation found|
|y. Comply with all of the provisions of the Rules of Operation and the Manual of Administrative Procedures.||Violation found|
|Violation of Rule 14B as a violation of the limited servicing agreement between Arbella and Rapo & Jepsen.||Violation found|
The committee also determined that each the violations found constituted a separate and independent ground for upholding Arbella’s cancellation.
Following the vote, CAR’s present counsel advised Rapo & Jepsen through its attorney that it had 30 days in which to appeal to a Governing Committee Review Panel. Also, pursuant to CAR’s revised rules, the appellate process at CAR automatically stays Arbella’s cancellation stayed until all appeals at CAR have been exhausted.
Appeal to Governing Committee Review Panel
The appeal of the Rapo & Jepsen agency under CAR rules is essentially a new hearing before three members of the Governing Committee pursuant to CAR rule 20. This rule provides:
…the review shall be held by a Governing Committee Review Panel consisting of three Governing Committee members entitled to vote. The ruling of the majority of the Panel shall be deemed to be the formal ruling of the Governing Committee.”
The decision of the Governing Committee Review Panel under the rules automatically becomes the decision of the full Governing Committee unless the Governing Committee takes affirmative action to hear the appeal before the full committee. As a practical matter the decision of the Governing Committee Review Panel is final as the Governing Committee has accepted few, if any, appeals to be heard by the full committee.
Agency Checklists will keep you posted
Agency Checklists will update its readers as this appeal, or any related litigation, goes forward.