The Calianos Insurance Agency was terminated by its servicing carrier Safety
For a number of years before 2012, the Calianos Insurance Agency had had a CAR assignment to Safety Insurance (Safety) as the servicing carrier under a commercial exclusive representative producer contract. In April 2012, Safety notified the Calianos Agency that it was terminating the agency’s ERP contract “as a direct result of repeated instances of agency checks being returned for insufficient funds”. Safety’s cancellation letter referenced two then recently returned checks and a third earlier check from November 2011 that had been returned. Safety also asserted that the agency had violated Safety’s instructions that the agency pay Safety by “money order, bank or certified check”.
Jason Calianos, the owner and President of the Calianos Agency, has been a fixture at CAR for a number of years. In addition to running his family’s agency which has been in Roxbury for over 50 years, he is also the President of the Urban Agents Association (UAA). In that capacity, he has often advocated at CAR for the assigned risk producers and commercial exclusive representative producers who have no voluntary market access or limited voluntary market access as a result of Massachusetts’ move to “Managed Competition”.
For agents like Mr. Calianos, CAR provides two important tools for the continued existence of their agencies: assigned risk producer certification and exclusive representative producer contracts for commercial auto risks along with taxicabs and livery risks. Without CAR certification and an assignment to a commercial servicing carrier, an urban agent in effect has no way in which to place a substantial part of its book of business. The Calianos Agency book of business comes mainly from the South End-Roxbury-Dorchester area of Boston which is as about as much of an urban location as any agency can have.
Notwithstanding his position in the UAA, Mr. Calianos in 2012 was also a member of CAR’s Market Review Committee which “considers market issues regarding producer/company relationships, particularly those involving compliance with the Rules of Operation and MAIP certification of Assigned Risk Producers.”
Safety’s cancellation notice for agency’s checks that were dishonored because of an apparent bank errors
The Calianos Agency filed a request for review under CAR Rule 14 asking the Market Review Committee (on which committee, Mr. Calianos sat) to overrule Safety’s termination. The agency attached to its Request for Review to CAR the cancellation letter and a letter from Sovereign Bank addressed to Safety stating that the two checks had been returned “in error” by the bank and apologizing “for the inconvenience”.
In response to the agency’s materials submitted to CAR, Safety submitted documentation going back to 2010 relating to agency payments made more than 10 days after binding coverage on assigned risk policies. It also included some dishonored checks from 2010 as well.
At the Market Review Committee hearing, the agency complained that the additional documentation went beyond the cancellation and added new items for which it needed more information and more time to respond. After an opinion from CAR counsel, the hearing went forward on all the issues. On the issue of the termination and the dishonored checks identified in the termination letter, Safety admitted receiving the bank’s letter but “…Safety thereafter, for different reasons, decided not to withdraw the termination”. Additionally, at the Market Review Committee hearing, Safety commented that the letter from Sovereign Bank about the two March 2012 returned checks was undated and “not constructed well,” and that there was nothing in it that “would change Safety’s mind that this would be a matter of termination.” After reviewing the evidence presented, the Market Review Committee upheld Safety’s termination of the agency’s commercial ERP contract. Both Mr. Calianos and the committee member from Safety had recused themselves from the Market Committee vote.
Governing Committee Review Panel upholds cancellation and decertifies agency as an assigned risk producer
The agency appealed the Market Review Committee’s decision to a Governing Committee Review Panel consisting of three members of the CAR Governing Committee. The Governing Committee Review Panel, is a subcommittee of the Governing Review Committee that is
“… charged with the responsibility to review appeals made by member companies and licensed producers aggrieved by any alleged unfair, unreasonable, or improper practice of CAR or a Member with respect to the operation of CAR. Only Governing Committee members may serve on this committee and decisions of the Governing Committee Review Panel are considered to be those of the full Governing Committee.”
In its appeal to the GC Review Panel, the Calianos Agency requested a reversal of the Market Review Committee’s decision upholding Safety’s termination. The Market Review Committee had questioned in some respects the Sovereign Bank letter. In response, the agency produced a second and more explicit letter from Sovereign Bank stating that it had dishonored the checks in error and the agency bore no responsibility. The addition of a second letter from Sovereign did not change Safety’s view of the matter nor of the Governing Committee Review Panel.
After reviewing the record, the Governing Committee Review Panel again upheld the decision of the Market Review Committee and finding that the agency should also lose its certification as an assigned risk producer.
Under CAR Rule 20(A), the ruling of the Governing Committee Review Panel is deemed to be the formal ruling of the Governing Committee unless the full committee “on its own motion shall modify or rescind the panel’s action.” At the next hearing of the CAR Governing Committee a motion, in fact, was made and seconded to modify the panel’s action by staying the agency’s decertification for 45 days. The motion failed on a vote of seven to four with two abstentions and the Governing Committee Review Panel’s decision, by operation of the Rule, became the formal ruling of the Governing Committee.
The Commissioner’s 24 thousand word decision spanning 45 single-spaced pages with 103 footnotes referencing the CAR’s hearing record and the law
Under the CAR enabling statute, G.L. c. 175, § 113H, any persons aggrieved by a decision of the CAR Governing Committee can appeal to the Commissioner of Insurance. Exercising this right, the Calianos Agency appealed and asked for a stay of CAR’s decertification action and of Safety’s contract termination. Almost immediately, the Division of Insurance hearing officer entered an indefinite stay of the CAR decisions and Safety’s contract termination. The agency and CAR who had now taken up the appeal to affirm the action of its committees submitted the record of all the proceedings at CAR along with their respective legal arguments as to what action the Commissioner of Insurance should take on the agency’s appeal. CAR argued that the decisions of its committees warranted no relief. The agency demanded the reversal of all CAR’s rulings and decisions against it.
After more than one year of considering the issue, the Division of Insurance found in favor of the Calianos Agency on all points. In issuing its decision, the Commissioner of Insurance signed off on one of the most comprehensive and detailed decisions ever issued by the Division of Insurance on a CAR appeal. The hearing officer’s November 25th decision has over 24 thousand words contained within its 45 single-spaced pages. The decision has 103 footnotes, some quite lengthy, supplementing its text. Besides essentially striking down all of the actions by CAR against the Calianos Agency, the decision details a veritable litany of procedural and substantive deficiencies that the hearing officer found existed in the CAR hearing process and in CAR’s lack of formal procedures relating to hearings before the Market Review Committee and the Governing Committee Review Panel.
The Commissioner of Insurance’s decision minced no words in making statements with regard to specific deficiencies identified in the CAR hearing process. The decision’s final ruling on the contract cancellation is consistent with the tenor of the decision:
“Although its role was to act as an impartial adjudicator evaluating a controversy between an ERP and a Servicing Carrier, CAR improperly imposed its own concerns on the matter, focusing on issues that Safety did not identify in the Termination Letter as grounds for its decision and inserting into the hearings comments on the Calianos Agency that were not relevant to that decision. Reviewing the record as a whole, I find that CAR’s hearings did not comply with the principles of and standards for an impartial hearing …”
The decision covered a lot of ground but some of the numerous issues that caused concern in the decision were the following:
- The failure of Safety Insurance to identify the specific contractual provisions the agency allegedly violated.
- The failure of CAR’s committee members to have any standard training or standard procedures for evaluating and deciding appeals that can have serious consequences to exclusive representative producers or assigned risk producers.
- The failure of CAR to follow its own rules at the Market Review Committee regarding parties submitting documents at least five business days before any hearing to allow parties to prepare or respond to allegations.
- Allowing Safety to introduce matters outside the scope of the ERP appointment and related to specific matters within the jurisdiction of CAR.
- The actions of a Market Review Committee member that the Division of Insurance characterized as “patently unfair” in attempting to contact Sovereign Bank to determine if the bank’s letter was authentic.
- The Governing Committee Review Panel, instead of reviewing the record of the Market Review Committee, allowing additional charges and documents to be added to the record.
- The apparent position of Safety Insurance that the statements by the bank that it was the bank’s fault and not the agency’s fault that the checks were dishonored would “not matter”.
- The actions of CAR in expanding the record beyond the matters alleged by Safety instead of limiting the hearing to the matters that Safety actually alleged.
CAR Governing Committee convenes a Special Meeting to consider the decision and CAR’s options
It seems that this very comprehensive and very weighty decision could affect any future hearings that may occur at CAR. The CAR Governing Committee has viewed the decision as one that requires careful consideration based upon their scheduling a special meeting for December 20, to hear outside counsel’s “report on the Division of Insurance’s Order on the Calianos Agency’s Appeal of a Decision of Commonwealth Automobile Reinsurers, Docket No. C2012-02.” Under G.L. c. 175, § 113H, CAR does have the right to appeal the Commissioner’s decision to the Superior Court for Suffolk County. That court has the specific statutory authority to “modify, amend, annul, review or affirm such action, order, finding or decision…” If the Governing Committees does consider such an appeal there is the possibility, if not the likelihood, that the Governing Committee will meet at this special meeting behind closed doors in executive session.
If the Governing Committee decides not to appeal decision, the question will remain as to what actions, if any, CAR will take in response to the deficiencies the Division of Insurance found in CAR’s hearing process.
Hearings such as the Calianos cancellation have become few and far between at CAR as a result of “managed competition”. In the last three years, the Market Review Committee has had three notices of meetings, one of which was for the Calianos appeal. In a similar period ten years ago, the Market Review Committee had twenty-nine notices of meetings. Hopefully, the Governing Committee will find a simple and cost-effective method of ensuring that future hearings at CAR proceed in a manner that protects the interests of all stakeholders, whether exclusive representative producers, assigned risk producers, or servicing carriers.
View a copy of the full Division of Insurance decision here
