A long running legal dispute over what fees, if any, a producer could charge and what disclosure, if any, the producer and his agency had to make to insureds has drawn a close after over five years of litigation. A Superior Court Judge specially assigned to hear a case for restitution brought by the Attorney General has resulted in the producer and the principals of the agency being found liable to repay $2.1 million in excessive fees added to insureds excess and surplus policies.
The Attorney General’s 2009 complaint to recover fees charged by producer on excess and surplus policies
In 2009, the Attorney General filed a 37 page complaint, along with 77 pages of exhibits, against the Kilgore Insurance Agency, a partnership of Cyrus A. Kilgore and Jeffrey B. Kilgore, and one of the agency’s producers, Andrew W. Crowther, Jr.
The Attorney General’s suit alleged that Mr. Crowther, in writing excess and surplus policies, primarily for the security and guard industry, failed to disclose and actively hid fees that in some cases exceeded the premium of the policy for approximately 100 insureds. The Attorney General alleged that the agency had liability for the actions of Mr. Crowther under apparent authority.
The Attorney General’s complaint contained specific examples such as the following premium and fee chart for one of the agency’s clients.
The defendants did not dispute the fees charged or the fact that they did not disclose any of the fees to their insureds. The defendants’ position was that their fees and practices were legal.
Accepting net quotes, altering policies to hide fees and giving insureds incomplete premium finance agreements to hide amounts actually charged.
The practices alleged by the Attorney and admitted by the defendants consisted of Mr. Crowther, upon receiving an excess and surplus premium quote for an insured, either accepting or rejecting the offered commission. He would then, however, add an undisclosed agency fee to the premium quote before presenting the adjusted figure to the client as the true premium, “as though it had been charged by the insurer.”
In order to ensure that the client did not know the existence or the amount of the fees, Mr. Crowther, according to the Attorney General would:
(1) alter insurance policies and premium finance agreements before providing them to clients, in most cases by eliminating the premium sent by the insurance carrier and inserting a figure that included the “rolled in” agency fee,
(2) provide incomplete premium finance agreement to clients (e.g., not send the third page of a finance agreement on which the true premium was set forth), and
(3) sign clients’ names to documents which stated the true premium amount or contained figures from which a client could determine the true premium amount.
Court finds not disclosing fees added to policy premium not a violation of G.L. c. 93A
Early in the case, the Attorney General moved for summary judgment on the simple premise that the actions of Mr. Crowther, as a producer, and the Kilgore Agency as the responsible party for the producer’s actions violated G.L. c. 93A, in:
(1) charging excessive agency fees to unwitting insurance clients and concealing those fees by “rolling” them into the purported “premium” figure presented to clients;
(2) hiding the agency fees by whiting out the true premium on actual insurance policies and typing in the inflated ‘premium’ before sending the policies to clients;
(3) further hiding the agency fees by whiting out the true premium and other figures on premium finance contract before sending them to clients (or rolling the fees into the purported premium or other figures on the contract); and
(4) preventing the insured from learning the existence or amount of the agency fees by forging clients’ signatures on certain insurance documents showing the true premium – and thereby insuring that clients would never see those documents.
The Judge’s decision on the first part of the Attorney General’s motion, however, found no general violation by rolling fees into premium quotes sent to insureds. The Judge’s decision was unequivocal and stated:
The court concludes that the practice of rolling agency fees into the premium without disclosure to the client does not violate chapter 93A as a matter of law even if the industry practice is to charge a commission, not an agency fee. There is no law, statute, regulation, or case prohibiting the practice and the court finds that the conduct is not unfair or deceptive in and of itself…
Although the Judge ruled that “the practice of rolling agency fees into the bottom line cost of insurance without disclosure” did not constitute a violation of chapter 93A, the Judge also decided to hold a trial on the additional claims of the Attorney General as to:
- Whether the active concealment of agency fees (as opposed to just not disclosing them) violated chapter 93A and,
- Whether the agency fees charged were so excessive that charging them without disclosure constituted a violation of chapter 93A.
After 22 days of trial the Judge rules that hiding excessive agency fees was a deceptive practice under G.L. c. 93A
The jury-waved trial on the issue of whether the fees that Mr. Crowther had charged were actively concealed and were excessive took place before the same specially assigned Judge over 22 days between August 22, 2012 and July 25, 2013.
On December 3, 2013 the Judge entered a 20 page order with her findings of fact, conclusions of law and order for partial summary judgment. The Judge found that Mr. Crowther’s practice of actively concealing the agency fee from insureds, considering the size of the agency fee in most instances, was deceptive and gave rise to c. 93A liability.
The Judge, however, denied the Attorney General’s request for additional relief including an injunction, civil penalties, attorney fees and litigation costs stating:
As discussed in detail above, at the time of the conduct engaged in by Crowther, there were no rules or regulations regarding fees which could be charged for surplus lines insurance placement, disclosure of those fees or recalculation by the retail broker of the “premium” set by the insurer. …The court will not punish Crowther for conduct that was not subject to regulation even though most of the insurance industry was heavily regulated. This includes denying the civil penalties, permanent injunctive relief, attorneys’ fees and costs of investigation and litigation sought by the commonwealth.
The final judgment allows fees of up to 20 percent of premium.
While the restitution order itself ultimately imposed liability against Mr. Crowther totaling some S2.1 million plus interest at 12% from the filing of the Attorney General’s suit in 2009, that Final Order also stated that:
The court orders Crowther to repay with interest any money Crowther received above a 20 percent commission.”
In essence, the Court allowed fee charges that did not exceed 20% of the gross premium. Of course, notwithstanding that 20% credit the fee overcharges still totaled $2.1 million.
Agency principals held liable under apparent authority liability for their broker’s excessive fee charges to insureds
In the findings against Mr. Crowther, the Judge specifically found that there was no evidence presented “that the Kilgore defendants were aware of Crowther’s active concealment of agency fees until an insured had complained in 2008.”
However, in a subsequent Order and in the Final Judgment the Judge found that the Kilgore defendants’ actions had “caused Crowther’s clients to reasonable believe that Crowther was authorized to act on the Kilgore defendants’ behalf in brokering insurance contracts. The Judge found that under the legal theory of apparent authority the Kilgore Agency’s partners were jointly and severally liable under chapter 93A with their producer, Mr. Crowther, for the deceptive conduct and, therefore, personally liable to pay the $2.1 million in restitution plus interest.
The final judgment entered in the case on April 10, 2015 also provided for prejudgment interest From December 2009 on the $2.1 million in restitution. The final liability of the producer and the agency’s principals, jointly and severally, totaled, with this interest, approximately $3.5 million.
The decisions in the Attorney General’s litigation and the charging of fees under Bulletin 2013-09
Since fees are now permitted under Bulletin 2013-09, anyone considering charging fees would be well advised to read the Judge’s decisions (Below) in this case and the Bulletin. Also see Agency Checklists October 8, 2013 article “New DOI Bulletin Says Producers May Charge Fees”.
The original decision on adding fees to policies not necessarily violating the law is here: Summary Judgment Decision On Fees And Premium.
The 20 page Findings and Decision explaining the fee practices in the excess and surplus market is here: Findings of Fact, Conclusions of Law and Order for Partial Summary Judgment.
The Final Judgment is here: Final Judgment against Crowther and Kilgore.