Arbella Filing Seeks To Prove Its Claim Of Premium Fraud Against Rapo & Jepsen

Last week, Agency Checklists reported on the appeal of Rapo & Jepsen Insurance Services, Inc. (“Rapo & Jepsen”) to the Market Review Committee of Commonwealth Automobile Reinsurers (“CAR”). The Appeal concerned the cancellation of Rapo & Jepsen’s Limited Servicing Carrier Agreement by the Arbella Protection Insurance Company (“Arbella”). See Agency Checklists, May 2, 2016, “Mass. Agency Appeals Arbella Cancellation For Alleged Premium Fraud Scheme.”

In that article, Agency Checklists had stated that it would update its readers on the hearing and on the additional evidence that Arbella stated that it would file, substantiating its claims against Rapo & Jepsen. The hearing has yet to take place but both Arbella and Rapo & Jepsen have made extensive additional filings to back up their respective positions.

Arbella and Rapo & Jepsen file six hundred and sixty-five (625) more pages between them for May 11 hearing at Market Review

In preparation for Market Review Committee hearing, Arbella filed 481 pages on May 5, 2016. Among the documents filed, include:

• a premium chart of fifteen business entities that Rapo & Jepsen established for insureds that Arbella claims in some cases the insured did not know existed and resulted in allegedly improper premiums (See chart below);
• a detailed memo of a January 20, 2016 meeting with the President of Rapo & Jepsen, John Rapo, where Mr. Rapo discusses with Arbella his “business model.”
• Four hundred and sixty-eight (468) pages documenting investigations and interviews by Arbella’s SIU of the insureds listed on the Arbella premium chart.

On the same May 5th, Rapo & Jepsen’s attorney also filed with the Market Review Committee one hundred and seventy-four (174) pages in support of Rapo & Jepsen’s appeal to CAR’s Market Review Committee to revoke the proposed termination of the contract between Arbella, as a servicing carrier for CAR, and Rapo & Jepsen.

The Rapo & Jepsen filing consists of:

• An eighteen-page single-spaced rebuttal from the agency’s attorney addressing each point of Arbella’s allegations;
• Exhibits from CAR manuals or notices relating to commercial lines;
• Representative forms used by Rapo & Jepsen for establishing business entities or trusts along with employer identification number applications.

Rapo & Jepsen’s Arbella policy count went from 2961 to 5370 policies between 2014 and 2015 through “word of mouth.”

Arbella’s May 5^th package contained a lengthy memo recounting a January 20, 2016 meeting with Mr. Rapo concerning a number of issues including:

• Rapo & Jepsen policy and premium growth;
• Loss Ratio on Book;
• Policies and Procedures implemented to ensure that only legitimate businesses obtained Commercial Policies;
• Discussion of out review of new business policies;
• Fees for non-insurance services;
• High growth rate of fraudulent claims from Rapo & Jepsen insureds;
• Co-operation with Arbella investigations;
• Employee training and supervision.

The memo states that in 2014 Rapo & Jepsen had 2961 ceded commercial policies totaling $6.7 million in premiums. By 2015, Rapo & Jepsen had 5370 ceded commercial policies totaling $11.9 million in premiums, representing a forty-four percent (44%) increase in written premiums. According to the memo, in comparison, Arbella’s other assigned agencies writing ceded commercial policies (about 250 agencies) only increased their premium by approximately ten percent (10%), during the same time period.

When asked about the exponential growth of the agency’s commercial ceded auto book, Mr. Rapo allegedly stated that the growth had been achieved simply by “word of mouth” as the agency has no advertising budget.

On the question of the establishment of businesses for his insureds Mr. Rapo was generally quite candid. According to the memo, when asked about the legitimization of businesses that were obtaining commercial policies through his agency stating:

• “It doesn’t matter if someone works one day a month doing something on the side, they can have a business. Someone who works at McDonald’s five days a week, but once a month does something on the side, allows them to form a business for it”.
• Mr. Rapo also said he personally knows of 20 other agents that are doing the same thing.
• Rapo & Jepsen initially was sending their customers out to other vendors to help form the businesses (such as in advisors etc.), but they were trying to charge the customers as much as $1,400 to do it.
• Mr. Rapo said that he decided to help them set up the businesses and corporation(s) within his own office and charge the fees himself. In his view, they had the capability to help service the customer and that was money walking out the door.
• Mr. Rapo said that he had checked on the legality of forming the businesses/corporations for his clientele with his long time attorney…[who] had drafted a letter for him which his customers sign allowing him to create a business for them.
• He described the process as when someone comes in without a business, they speak to them to assess their needs and place them with a carrier.
• If they say they have a business or are trying to form one his agency doesn’t question them any further on it. They will have them sign the form created by Mr. Rapo’s attorney and then the Rapo & Jepsen employee will proceed right in the office to obtain an EIN tax number for them from the IRS and then register them with the Secretary of State as a corporation.

A little over forty days after this meeting, Arbella hand-delivered its contract cancellation notice to Rapo & Jepsen.

Arbella files promised backup for its charges against Rapo & Jepsen

In its supplementary response to CAR alleging that Rapo & Jepsen had set up sham corporations and business entities to allow ineligible applicants to obtain insurance and applicants who would pay materially greater premiums if their vehicle had not been falsely insured as a commercial vehicle, Arbella promised to file documentation proving its allegations.

The first document consisted of the following chart listing in some cases the premium difference if the insurance had been issued at private passenger automobile rates instead of commercial auto rates.

ARBELLA CHART OF RAPO & JEPSEN SAMPLE INVESTIGATION RESULTS

Arbella filing documents include fifteen investigations on Rapo & Jepsen’s business filings for insureds

These 15 examples of Arbella investigations of selected insureds all include similar evidence of insureds not knowing of businesses being established on behalf of them for the purpose of making a commercial insurance application. They also show cases of where insureds knowingly agreed to establish a corporation or d/b/a in order to save on premium or to obtain insurance for which they were not eligible.

For example, the first person listed on Arbella’s premium chart above, Beatrice Flores, signed an affidavit for Arbella stating in part:

1. In 2014 I purchased a car and obtained insurance for my car.
2. The car was for my own use and was not to be used in business.

* * *

4. I never gave anyone permission to create a business for me or to apply for a tax number.

* * *

7. I am not involved in, nor have I ever been involved in any business under the name of “Flores Florist.” I never told Rapo & Jepsen…that I worked in a florist business or that I wanted a commercial insurance policy.
8. At the time I applied for insurance I worked at the Danish Pastry House in Watertown, MA.
9. I also learned that someone made a business card for a business called Flores Florist and put my telephone number on the business card. Attached is a copy of a business card that the insurance company showed me when they asked me questions about this. I never saw that business card before. I did not have any business cards made and never asked anyone to do that. I have never been involved in any florist business.

* * *

The second corporation profiled is the MIG Company, Inc. According to Arbella’s filing, it was established by a carpenter from Brazil who had no license. This insured knew that he was setting up a corporation in order to get insurance. According to Arbella’s investigator, this insured said:

[Insured] stated that he went to the Rapo & Jepsen Agency on Rt. 16 in Everett and spoke to Daniel Bertolazzi (he knew his first and last name). …He understood that Daniel was applying for an EIN for him and a corporation solely for the purposes of obtaining an insurance policy. [Insured] had no idea -what ” the fees were associated with doing so. He paid $1300.00 in cash to Daniel to take care of everything. [Insured] did admit that he signed the paperwork to do it. He claims there was no breakdown of the charges; merely it was $1300 he had to pay to get insurance. [Insured] explained to Arbella that if he had a license, he wouldn’t need to pay this much or get insurance this way. However, since he did not have a license, he is forced to do it like this. [Insured] acknowledges that they set the corporation up for him knowing it didn’t exist and was done simply to get the insurance. Walter had a DBA beforehand that was cancelled which is why this time they had to do it this way, Daniel explained to him. His DBA was also through Rapo & Jepsen and was also done by Daniel. He states the company was for the purpose of getting auto insurance and he chose the name MIG Company because it is the state he comes from in Brazil.

Since being insured with Arbella through the Rapo & Jepsen agency, this insured has never owned a business of any kind.

The remaining thirteen insureds stories follow a similar pattern with recorded statements as well as investigative reports.

Agency Checklists will update its readers

The Market Review Committee hearing is scheduled for May 11, 2016. Agency Checklists plans to update interested readers on what, if any, decision the Committee makes on Rapo & Jepsen’s appeal.