The MAIA informed its members of the complaint filed in its July 24, 2014 Newsletter
The Massachusetts Association of Insurance Agents (MAIA) announced to its members that the association had filed a complaint with the Commissioner of Insurance on July 15, 2014, against both Government Employees Insurance Company (GEICO) and Progressive Insurance.
The complaint relates to those companies’ practices and procedures in quoting, binding, cancelling and purportedly nullifying coverage under Massachusetts automobile insurance policies. The MAIA complaint asserts that various procedures, practices and/or approved forms used by GEICO or Progressive “… may violate either Massachusetts law, policy language or regulatory procedures.”
The MAIA identified six specific areas of GEICO’s and Progressive’s automobile insurance procedures that it believed raised questions as to statutory and regulatory compliance. Those areas include Flat Cancellations, Policy Cancellation Letter, Documentation of Transfers of Private Passenger Motor Vehicle Insurance; Named Insured/Loss Payee/Secured Lender; a “Null and Void Letter”; and Shared Liability Limits.
|Practice identified by the MAIA||Carrier employing practice or procedure|
|Policy Cancellation Letter||GEICO|
|Transfer Documentation of Vehicle Insurance||Progressive|
|Named Insured/Loss Payee/Secured Lender||GEICO and Progressive|
|Null and Void Letter||GEICO|
|Shared Liability Limits||GEICO|
The Association’s letter to the Commissioner explained each practice and its concern for the effect of GEICO’s and Progressive’s actions. Of the six specific practices identified, two practices of GEICO possibly have the greatest concern to consumers, companies and insurance agents who deal with these consumers: The flat cancellation letter and the null and void letter.
GEICO’s flat cancellation letter and its null and void letter
The Association directed the Commissioner to a GEICO practice that is apparently not uncommon, that of issuing a “flat cancellation” when a consumer, who obtains quotes from GEICO, comes to find that GEICO issued a policy, without their agreement. Also, according to the Association, consumers who switched from another carrier to GEICO, who wish to rescind for various reasons, also receive a “flat cancellation” letter.
In these cases, the Association asserts that GEICO has notified the prior carrier that their coverage has been replaced by GEICO. If GEICO subsequently advises the consumer through its flat cancellation letter that it is terminating the consumer’s coverage back to the GEICO’s policy’s inception date, the consumer has a gap in their coverage. The transfer of insurer notice by GEICO to the prior carrier terminated that prior carrier’s coverage by operation of law. As a result, until the consumer acquires a new policy or the prior carrier reinstates the original policy, the consumer’s only recourse would be a lawsuit against GEICO if there were a claim.
The Association also called the Commissioner’s attention to a second letter used by GEICO when a financial institution returns an insured’s down-payment for a policy. This letter purports to advise the insured that since their down-payment did not clear their financial institution and, therefore, GEICO has declared their policy “null and void.”
The MAIA’s says the GEICO letters violate the statutory 20-day notice of cancellation
The Association maintains that since GEICO had notified the prior carrier of the new policy thus causing the termination of the previous policy, it cannot simply cancel its policy flat, but rather must issue a legal notice of cancellation to provide the consumer time to put new coverage back in place.
In Massachusetts, G.L. c. 175, § 113A provides “… no cancellation of the policy, whether by the company or by the insured, shall be valid unless written notice thereof is given by the party proposing cancellation to the other party giving the specific reason or reasons for such cancellation at least twenty days in each case prior to the intended effective date thereof …”
This 20‑day division on the notice of cancellation by either the insured or the insurance company applies if a policy has been issued. The Association, however, did not mention two other possible statutes or remedies that might apply.
In particular, the standard validation of the existence of an insurance policy is not the policy itself but in fact is “the certificate” specified in G.L. c90, § 34A. However, the specific provisions relating to the issuing of a certificate are found in G.L. c90, 34B.
This provision provides that if an insurance company has in fact filed a certificate with the registrar then: “the company shall be estopped to deny the issue or validity of such certificate or that a motor vehicle liability policy or bond has in fact been issued or executed …”
In this case, if in fact GEICO or any other company does issue a certificate, the provision of §34B would bar the company from claiming that the policy was either “cancelled flat” or that the policy was “null and void.”
A second possibility that could result in a determination of the validity of either the flat cancellation or null and void letter, would be a consumer complaint to the Board of Appeal, established under G.L. c. 175, § 113D. This statutory board has jurisdiction to determine whether any “written notice purporting to cancel a motor vehicle liability policy or bond…” is “invalid, or improper and unreasonable, or both.”
While the MAIA did not attach the form used by GEICO for these notices, a fair inference is that they purport this action to be cancellations of an automobile insurance policy. If so, the Board of Appeal might rule on a consumer’s complaint whether, under the provision of G.L. c. 175, § 113A, cited by the association or under the provisions of G.L. c. 175, § 34B, as cited in this article, such notices violate Massachusetts law.
The Association’s additional complaints to the Commissioner
As well as the flat cancellation and the null and void letters that could theoretically leave a consumer with a coverage gap, the Association also requested the Commissioner to look into four additional provisions. The Association asserted in its formal complaint letter that these additional practices and procedures might also violate statutes, regulatory bulletins or policy conditions.
- GEICO’s Policy cancellation letter for insureds to cancel prior policy
The MAIA’s complaint included the terms of a policy cancellation letter filed by GEICO with the Division of Insurance. This approved form provides for an insured to notify a prior carrier that GEICO has issued a replacement policy and that the insured wishes to cancel the prior policy effective as of the date of the new GEICO.
The Association again questioned whether this type letter violates the 20-day cancellation requirement of G.L. c.175, § 113A.
However that statute also provides, “That the policy shall terminate…upon the filing of a certificate…of another company covering the same motor vehicle or trailer.” The Association’s position may be correct, but it does seems that if GEICO files a new certificate of insurance, the letter from the insured to the carrier might be legally redundant. The filed certificate would terminate the prior coverage without the need for a twenty-day cancellation notice from the insured.
- Progressive’s compliance with Division of Insurance Bulletin on documenting transfers of Private Passenger Motor Vehicle Insurance:
The Association’s complaint further questioned the Commissioner on Progressive Insurance’s practice to provide a 2A notification to a prior carrier and not the prior producer only when an insured makes a specific request. The Association pointed out in its complaint that the Division’s Bulletin 2008‑10, issued at the start of managed competition, provides that “the producer of record of the new policy must notify the prior producer of record, if known or the prior insurer of the transfer of coverage as soon as possible …”
The Association argued that the failure to notify either the prior carrier or the prior producer of record, as required by the Bulletin, can cause substantial problems for both the prior carrier, the prior producer, and ultimately the insured. The lack of any notice to the prior carrier or producer can result in the issuance of non-payment cancellations by the prior carrier with a resulting impact on the insured’s credit record.
However, notwithstanding that this alleged practice is a clear violation of the specific terms of the insurance department bulletin, as a previous article of Agency Checklists pointed out, Division of Insurance Bulletins do not have the force of law. As such, unless the Commissioner takes more direct action, this unfortunate circumstance could continue without any consequences to a carrier that elects to ignore the guidance of the bulletin.
- Named Insured/Loss Payee/Secured Lender:
On this issue the Association indicated that both GEICO and Progressive apparently permit applicants to insure vehicles on one policy that they do not own. The questions raised by the Association on this issue was whether the combination of separate owners on one policy violate the general common-law rule of insurable interest. The Association also questioned whether the allowance of this type of combination policy would result in “serious coverage gaps” for the owners of the individual vehicles on one policy.
- Shared Liability Limits quotes.
Finally the Association called into question GEICO’s quotation practices. The MAIA advised the Commissioner that it has seen copies of quotes from GEICO that include multiple vehicles listed but with only one premium quoted for policy parts 1, 2, 3, 4, 5, 6, and 12 for all listed vehicles even though the coverage selection page is placed on file by GEICO has the separate payment fee for each coverage for each vehicle listed on a policy. The Association’s letter did not indicate if the actual policies being issued had an aggregate premium for all vehicles or were in fact simply quotations for vehicles that quoted a simple premium charge applicable individually to each of the vehicles in question.
Agency checklist will keep you posted of any developments that come from the division on the MAIA’s complaint.