On February 28, 2017, the Division of Insurance docketed an Order to Show Cause against John J. Rapo and his insurance agency, Rapo & Jepsen Insurance Services, signed by Mary Ellen Thompson, Counsel to the Commissioner, ordering them to show cause why the Commissioner of Insurance should not find, after hearing, that they have violated the Commonwealth’s insurance laws, as specified in the show cause complaint.
Setting up sham business entities to write commercial policies for foreign licensed drivers leads to DOI complaint
The facts alleged in the show cause order all relate to the cancellation by Arbella of Mr. Rapo’s insurance agency, Rapo and Jepsen, for setting up sham corporations and trusts to obtain commercial insurance for foreign licensed operators.
The seven-page insurance department complaint is supported by 52 pages of documents from the proceedings before CAR’s Market Review Committee. In those proceedings, Rapo and Jepsen sought to have the committee overturn Arbella’s cancellation of the agency’s commercial automobile exclusive representative producer contract (“commercial contract”).
Arbella cancelled Rapo & Jepsen’s commercial contract after the agency had grown to 5370 ceded commercial policies totaling $11.9 million in premiums. A review of the agency’s book of business by Arbella revealed that eighty (80%) percent of the agency’s commercial placements were private passenger–type single operator vehicles in comparison, the usual ratio in the residual market for such vehicles of twelve (12%) percent. Besides this unusual percentage, Arbella also found that a significant number of these same submissions had foreign licensed operators.
In conducting almost 200 investigations of the agency’s insureds allegedly operating businesses, Arbella found a pattern where most knew nothing about any businesses; and the insureds were unaware of how their vehicles had been insured as corporations or trusts.
However, these insureds had been charged by the agency fees for setting up corporations and trusts along with any filing fees and service charges. Some of these insureds if properly rated as private passenger vehicles rather than commercial vehicles would have paid substantially higher premiums or could not have obtained insurance for lack of a valid license.
The Market Review Committee upheld Arbella’s cancellation.
The Arbella cancellation and the Market Review Committee proceedings were the subject of Agency Checklists’ articles on 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” and June 28, 2016, Arbella’s Cancellation of Rapo & Jepsen Upheld By CAR.
Department seeks license revocation, divestiture of insurance assets, and fines
The show cause order seeks findings of violations of the insurance laws and specific orders against Mr. Rapo and Rapo & Jepsen including:
- an order that that Mr. Rapo and Rapo & Jepsen cease and desist from the conduct alleged in the Order to Show Cause.
- An order revoking all insurance licenses granted by the Division to Mr. Rapo and Rapo & Jepsen as provided under M.G.L. c. 175, § 162R(a) (a statute providing the Commissioner may revoke an insurance producer’s license for any of 14 specified violations).
- An order that Mr. Rapo, upon the revocation of his license, comply with M.G.L. c. 175, § 166B, that he dispose of all interests as proprietor, partner, stockholder, officer or employee of any licensed insurance producer in Massachusetts.
- An order that Mr. Rapo and Rapo & Jepsen submit all Massachusetts insurance licenses in their possession to the Division.
- An order prohibiting Mr. Rapo and Rapo & Jepsen from directly or indirectly transacting any insurance business or acquiring any insurance business in the Commonwealth of Massachusetts in any capacity whatsoever from the date of the Order.
- An order assessing the maximum fine allowed by law as provided by M.G.L. c. 175, § 162R(a)(7), under M.G.L. c. 176D, § 7.
- Assess the maximum fine allowed by law as provided by M.G.L. c. 175, § 162R(a)(8), under M.G.L. c. 176D, § 7.
- Assess the maximum fine allowed by law as provided by M.G.L. c. 176D, § 2, under M.G.L. c. 176D, § 7.
No responsive pleadings to the Order to Show Cause filed
Under the adjudicatory proceeding regulation of the Massachusetts Administrative Procedures Act, Mr. Rapo and Rapo & Jepsen would have had 20 days to file an answer or other responsive pleading such as a motion to dismiss or for a more definite statement. Per the division, no responsive pleadings had been filed as of Monday, April 3, 2017.
Sometimes, no pleadings appear on the docket because there is an agreement for an extension of time to reply between the parties. However, if no timely pleading is filed, Mr. Rapo and Rapo & Jepsen will be declared in default and the above orders will enter upon the motion of the department.
Copy of Order to Show Cause as filed available
For a copy of the Order to Show Cause filed by the Division of Insurance, send your request to: email@example.com.
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Agency checklists will keep its readers informed
Agency checklists will monitor this proceeding and advise its readers if there are any developments.