Less than four months after purchasing the personal and commercial lines business of Rapo & Jepsen Financial Services (Rapo & Jepsen), Point Insurance, Inc. (Point or Point Insurance) filed a lawsuit against its commercial servicing carrier, Arbella Protection Insurance Company (Arbella). The filing seeks an injunction against that carrier’s special practices and procedures relating to the underwriting and investigation of Point Insurance’s insureds. In addition, Point also brought a proceeding before the Division of Insurance against Arbella’s practices.
After the dismissal of its lawsuit and the subsequent dismissal of its proceeding before the Division of Insurance, Point Insurance will have its objections to Arbella’s underwriting and fraud investigative procedures heard before CAR’s Market Review Committee on Thursday, January 12th.
Rapo & Jepsen employee acquired Rapo & Jepsen’s assets while Arbella’s commercial producer contract cancellation alleging fraud was pending before CAR
In May and June of 2016, the Market Review Committee of CAR held hearings on the cancellation request of Arbella Insurance against Rapo & Jepson.
The details of Arbella’s allegations and Rapo & Jepsen’ defense appear in Agency Checklists’ articles of 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; May 17, 2016, Arbella Presents Its Fraud Claims At CAR Against The Rapo & Jepsen Agency; 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.
Arbella based its cancellation of Rapo & Jepsen’s commercial line exclusive representative producer contract on allegations that the agency had engaged in a “systematic scheme to write commercial insurance for individual drivers using fraudulent or sham businesses.”
Rapo & Jepsen denied these allegations and claimed that it had the legal right to assist its customers in establishing commercial entities and obtaining tax identification numbers for a fee. In return, Arbella produced interviews and transcripts, from its SIU regarding investigations that, it claimed, established that many, if not most, of Rapo & Jepsen commercial insureds had no legitimate businesses. In fact, it further argued these insureds had simply paid the agency to establish a sham business.
During the course of the Market Review Committee hearings, CAR was advised that Rapo & Jepson was selling all of its insurance agency assets to a newly established insurance agency, Point Insurance.
Point Insurance formed after cancellation issued by Arbella
On March 2, 2016, Arbella had issued its Notice of Termination to Rapo & Jepsen. On March 29, 2016, Point Insurance, Inc. was established by a four-year Rapo & Jepsen employee, Bruno Rozembarque.
Point Insurance Agency then obtained a Massachusetts Resident Business Entity Producer License effective April 11, 2016. After that, Point pursued a commercial appointment through CAR. In June 2016, Rapo and Point executed a purchase and sale agreement, whereby Point acquired the Rapo CAR commercial book of business. The purchase and sale agreement was executed at or about the same time that the Market Review Committee upheld Arbella’s termination of Rapo and Jepsen’s contract.
Following the approval of the sale by CAR, Rapo & Jepsen withdrew its appeal from the decision of the Market Review Committee and accepted the Arbella cancellation. As a result of the cancellation, Rapo & Jepsen would not be eligible to reapply for a commercial ERP contract for 2 years from the date of the cancellation or until approximately March 2018.
Point Insurance alleges discriminatory treatment by Arbella of the insureds it acquired from Rapo & Jepsen
Point’s allegations are that, since its purchase of the Rapo & Jepsen book of business, Arbella has engaged in a course of discriminatory conduct against the former insureds of Rapo & Jepson now being serviced by Point Insurance. For its part, Arbella has answered the agency’s complaint at CAR by asserting that its actions in relation to Point Insurance were consistent with its duty to prevent insurance fraud.
Point Insurance’s request for review to the Market Review charges that Arbella’s efforts are entirely designed to rid itself of Point’s commercial customers and that the insurer’s course of conduct goes against the rules of CAR. The agency asserts that Arbella is treating Point Insurance and its customers differently than all other ERPs and their customers, in making Point Insurance operate under rules different from those of any other ERPs appointed by CAR.
In particular, the agency alleges that:
- Arbella created, exclusively for Point Insurance, a Limited Servicing Carrier Agreement (LSCA) that has terms and conditions that no other ERP (or voluntary producer) must comply with;
- imposed underwriting procedures and standards exclusive to Point Insurance and its customers;
- the standards imposed by Arbella are inconsistent with the rules of CAR or its standards;
- Arbella created a renewal application exclusively applicable to Point Insurance’s customers that demands information that varies from the standard renewal forms;
- that Arbella imposed standards and additional terms and conditions on Point Insurance’s customers for maintaining commercial insurance which are inconsistent with CAR Rules and which no other Massachusetts consumer must meet.
As a result, the agency claims that Arbella has used “unlawful and improper mechanisms and incorrect underwriting standards to deny, cancel and non‑renew policies to Point’s customers.”
The specific forms that Point Insurance claims violate CAR Rules and its rights are a requirement that certain of its insureds execute an affidavit, under oath and signed by the insured, in addition to an affidavit from Point Insurance, also under oath, “that the information supplied by the customer is true.”
The agency claims that “no other ERP is required to have its customers execute such an affidavit as a condition of obtaining coverage with CAR and, certainly not in the voluntary market.” The agency also asserts “that Arbella does not use these forms with any other ERPs or producers in the voluntary market or their respective customers.” The agency also complains that additional conditions were attached to its LSCA as an improper condition of obtaining the appointment from CAR.
Point also contests the unique renewal form that Arbella has developed only for its agency’s customers. The agency claims that it harasses, invades, and abuses its insureds with nonsensical questions which are impossible to answer and that, in the agency’s words have “no relation to a commercial entity’s eligibility for insurance through the residual market.”
The agency alleges that, since November, Arbella has sent hundreds of the “Point policy renewal forms” to Point Insurance’s customers. It also contends that since November, Arbella has been processing non‑renewals of some of the Point Insurance’s commercial customers based upon their response to the questionnaire. The agency further alleges that, as of mid‑December, Arbella had improperly non‑renewed approximately 200 of its insureds, and that Arbella’s actions constitute unfair, unreasonable, and improper conduct that violates General Laws Chapter 175 and 176D, the Unfair and Deceptive Insurance Practices Act.
Relief sought by Point Insurance
In its Request for Review to the Market Review Committee, Point Insurance seeks twelve separate remedies that include among others, an:
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[an] Immediate ruling and order that Arbella rescind any non-renewal or cancellation notices issued to Point’s commercial customers premised on the failure to respond or the answers supplied in response to the Commercial Auto Renewal Application which Arbella has created for and sent to Point’s customers.
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[an] Immediate ruling and order that Arbella cease refusing to issue, cancelling or non-renewing commercial insurance policies to Point’s commercial customers based on Arbella’s assessment of the legitimacy or propriety of the business uses of those customers’ vehicles, instead of whether the customer is eligible for a commercial policy under the standard set forth in CAR Rules;
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[an] Immediate ruling and order preventing Arbella from imposing any requirements on Point that it does not impose on voluntary producers and/or other ERPs…
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[an] Immediate ruling and order enjoining Arbella’s SIU investigators from conducting investigations or interviews of Point customers at a rate disproportionate to its overall investigation rate and on improper grounds, including that they are applying for insurance through the residual market.
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An award of monetary damages to Point for losses it has sustained as a result of Arbella’s wrongful conduct, comprised in part of the premiums that Point would have received on the policies that Arbella wrongfully cancelled, or refused to issue or renew, and in part by legal expenses necessitated by Arbella’s unfair conduct.
Arbella claims its actions are proper because “the accounts written by Point were developed in the context of a scheme to defraud”
In its response to the agency’s request for review, Arbella has disputed that none of its practices are “in any way unlawful, unreasonable, unfair or improper.” Rather, Arbella asserts that its actions, in relation to Point Insurance’s book of business, are proper underwriting and fraud-fighting tools. Arbella disputes that any of its actions directed at Point Insurance’s insureds are being utilized because Point Insurance’s business is residual market business.
In continuation, Arbella argues that “these tools are being utilized because the accounts written by Point [Insurance] were developed in the context of a scheme to defraud the commercial automobile insurance market…” Arbella asserts that Point Insurance acquired the assets of Rapo & Jepson, after it was terminated for fraud in connection with the submission of commercial risks through CAR, as a knowing buyer familiar with the book of business and its problems. Arbella disputes that Point Insurance should not expect any less scrutiny over its book of business than Arbella would have given the book if Point had not bought it..
Arbella’s submission argues that:
Essentially, Point now argues that the very scheme found to be impermissible when implemented by Rapo & Jepson–insuring vehicles owned by sham entities created by or at the suggestion of the agency solely for the purpose of obtaining eligibility in the commercial market–should be legitimatized and protected when used by Rapo & Jepson’s successor.”
Requiring detailed information from insureds originally placed by Rapo & Jepsen valid fraud-fighting tool
Arbella’s submission to the Market Review Committee asserts that Arbella is solely using the underwriting and documentary evidence it is requesting, in order to ferret out the fraudulent risks that “permeate the Point book of business”. The information is also being used to help determine which risks are in fact legitimate commercial entities and which risks are not legitimate commercial entities and finally whether the operators of the insured vehicles are validly licensed to drive in Massachusetts.
Arbella further claims that its use of the mutually agreed underwriting guidelines, the use of renewal questionnaires, the use of SIU investigation and the use of non‑renewal notices are all designed and intended to ensure that only genuine commercial risks and validly licensed persons are insured through the CAR commercial market.
The special underwriting forms and renewal applications are appropriate, according to Arbella, because of the nature of the insureds acquired by Point Insurance from Rapo & Jepson.
Additionally, Arbella points out that rather than partnering with Arbella to fight fraud, Point has sued Arbella unsuccessfully both in the Superior Court and at the Division of Insurance. In those proceedings, Point asserted, as it now does before CAR, that Arbella should be stopped from obtaining information on commercial risks where policies have been issued to operators that “do not have a valid driver’s license and which risks were insured commercially to evade SDIP rating in the private-passenger market.”
This litigious stance of Point, Arbella implies, seems inconsistent with obligations of Point under CAR’s Rules relating to fighting fraud. Rather, there is no dispute, or should be no dispute, according to Arbella, that the current Point Insurance book of business includes fictitious commercial entities created by Rapo & Jepson to evade Massachusetts licensing and registration requirements or to evade premiums otherwise due under the SDIP merit rating system. As such, Arbella dismisses Point Insurance’s claim that the form of the entity should override the underlying substance of the actual insured’s business.
Arbella gave guidelines at the request of Point Insurance
Arbella’s final point argues that Point Insurance has no basis for contesting the guidelines given to it to prevent further fraud by its insureds.
Arbella notes that after the sale of Rapo & Jepsen’s book of business to Point Insurance, it was Point Insurance, itself, that requested guidelines and procedures ‘to avoid any ongoing concerns or issues raised in connection with Rapo & Jepson …'”. The request came through Point’s counsel and according to Arbella:
… the guidelines were only created because Point requested them. Their development and terms were entirely transparent and subject to negotiation with Point receiving advice of its counsel. Whether the guidelines are part of the contract or not was entirely subject to discussion, advice and negotiation. At no time did Point or its counsel request different guidelines, dispute the guidelines or suggest that they should be not part of the contract.”
Agency Checklists will follow and report on the Market Review Committee hearing scheduled for January 12, 2016.
