As previously reported in Agency Checklist’s article of January 10, 2016, “Rapo & Jepsen Round Two: Agency’s Purchaser Files In Court, At The DOI, And At CAR, Actions Alleging Discrimination by Arbella,” Point Insurance requested relief from the Market Review Committee from alleged unfair, unreasonable, and improper conduct by the Arbella Protection Insurance Company (Arbella).
Market Review Committee hears ten requests for relief by Point Insurance against Arbella
On January 12, 2016 the Market Review Committee of Commonwealth Automobile Reinsurers heard the Request for Review of Point Insurance on ten requests for relief. The agency asked the committee to find that the following practices and procedures employed by Arbella, in dealing with Point Insurance and its customers, were unfair, unreasonable, and improper conduct:
- The issuance by Arbella of non-renewal notices to Point commercial customers based on improper eligibility grounds not set forth in the CAR Rules.
- Arbella’s denial, cancellation or non-renewal of commercial auto insurance policies for Point customers who are eligible for same under CAR Rules, including those lawfully existing and organized entities and those entities’ whose vehicles may be operated by individuals who possess operator’s licenses from foreign countries or may otherwise be eligible to obtain an operator’s license.
- The creation and issuance by Arbella to Point Customers only, of an improper form “Commercial Auto Renewal Application” and the imposition of the requirement that Point’s customers complete the application, and that Point attest under the pains and penalties of perjury to the information supplied, as a condition of renewing coverage.
- Arbella’s use of improper and different underwriting standards for Point customers than it uses for other commercial customers in the residual market and which are inconsistent with CAR Rules.
- Arbella’s wrongful imposition of terms and condition on Point’s ERP appointment that are unreasonable, improper, and unlawful and which are inconsistent with and more onerous than the terms and conditions of its contracts with other ERPs and voluntary producers.
- Arbella using a Limited Servicing Carrier Agreement with Point which contains different and far more onerous terms and conditions than its contracts with voluntary producers.
- Arbella’s use of different correspondence, forms and applications for Point and its customers than it uses for customers and producers in the voluntary market.
- Arbella’s practice of requiring Point to follow procedures which it does not require other voluntary or involuntary producers to follow.
- Arbella’s use of its SIU department to intimidate and harass Point’s customers and damage Point’s business;
- Arbella’s wrongful, unlawful, discriminatory, improper and unreasonable treatment of Point’s customers, many of whom are minorities and or of foreign national origin.
Point Insurance argues Arbella “set up Point to fail”
In first instance, the committee heard from Point Insurance’s counsel, Joshua Lewin. Mr. Lewin’s initial argument, which lasted for approximately thirty minutes, focused on why the committee should grant Point Insurance requests for relief.
During the course of his argument, Attorney Lewin described to the committee the specific practices and procedures Arbella imposed upon Point Insurance that were unfair and unreasonable, including:
- 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;
- it imposed underwriting procedures and standards exclusive to Point Insurance and its customers;
- it imposed standards that are inconsistent with the rules of CAR or its standards;
- it created a renewal application exclusively applicable to Point Insurance’s customers that demands information that varies from the standard renewal forms;
- and 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.
These standards and guidelines that Arbella imposed of Point Insurance as the purchaser of Rapo & Jepsen’s book of business, according to Attorney Lewin, were standards and guidelines that, essentially “set up Point to fail.”
Individual insureds have right to hold vehicles in legal entities such as corporations
As to the dispute with Arbella over individuals insuring vehicles through corporate entities, Attorney Lewin pointed out that the legal entities, such as corporations, that Arbella was questioning were perfectly appropriate under Massachusetts law to hold assets or conduct any type of a business. He pointed out that many high-net worth insureds put vehicles in such legal entities for purposes other than conducting business.
Point Insurance’s position, as stated to the committee, was that CAR rules are clear that if the motor vehicle is held as an asset of a commercial entity then it is only eligible for a commercial policy. Only one criterion applied, argued Attorney Lewin: “Is there a lawful business entity holding title to the vehicle?” Attorney Lewin did concede that it was “crazy, crazy that the rates on a commercial policy don’t depend upon the driving record of the vehicle’s drivers” since someone with multiple DUIs on their record could obtain a commercial insurance policy. However, this anomaly was for CAR to resolve by a Rule change and not for Arbella to unilaterally make its own rule.
What is a valid operator’s license?
Attorney Lewin next addressed Arbella’s refusal to write commercial policies through Point Insurance where the listed has a valid foreign operator’s license based on the provision in CAR’s enabling statute. The provision in that statute, G.L. c. 175, § 113H, states:
…no insurance company shall be required to issue [a residual market] policy…if:
* * *
(2) Any person who usually drives the motor vehicle does not hold or is not eligible to obtain an operator’s license.
Attorney Lewin pointed out that CAR has issued no rules or opinions interpreting what constitutes a valid license. Also, he noted that the provision in question does not state that the requirement mandates a “Massachusetts driver’s license.”
Attorney Lewin argued, as a practical matter, that what is happening is that all the Point Insurance insureds that Arbella will not write, because they have a foreign license, only end up applying at another agency and have their commercial policy written through a servicing carrier other than Arbella. As a result, there is an inconsistency in the marketplace where some insureds can get insurance and other insureds cannot.
How can any agency know and attest to an insurance company that an insured’s answers are true?
Attorney Lewin took special umbrage from the affidavit Arbella demands from Point Insurance and its insureds. The affidavit seeks to have Point Insurance certify under the penalties of perjury that the information given by the insured is true. Attorney Lewin stated that as counsel for the agency he could not advise any agency, including Point Insurance, to sign such an affidavit. According to Attorney Lewin, if the insured lied to the agent and the agent relied upon the fraudulent representations, and executed this affidavit, the agency would become liable for the insured’s fraud.
Attorney Lewin then turned to the special renewal questionnaire required by Arbella for Point Insurance’s insured and presented his arguments as to each of the questions listed on the renewal questionnaire.
Attorney Lewin ended his presentation with the request that the committee rule that Arbella’s special procedures and the special contract for Point Insurance are in violation of CAR rules.
Following Attorney Lewin’s presentations, the Committee chairman, Mr. Boynton asked the Committee members if there were any questions that they wished directed to Attorney Lewin on behalf of Point Insurance. Hearing none, the Committee members then heard the presentation from Arbella in opposition to Point Insurance’s request for relief, after a short recess.
Point Insurance bought Rapo & Jepsen’s book of business knowing it was riddled with fraud and like no other book of business
Following the reconvening of the committee, Attorney Robert Fitzpatrick, representing Arbella, presented Arbella’s position.
To Arbella and Attorney Fitzpatrick, the problem with Point Insurance’s position was that neither Point Insurance nor its counsel were willing to concede that the Rapo & Jepsen book of business Point Insurance acquired, was like no other book of business. As a result, the CAR rules regarding similar treatment simply cannot apply to this book of business.
Attorney Fitzpatrick laid out for the committee why, in Arbella’s opinion, Point Insurance’s acquired book of business had to be treated differently from other books of business because of the history of fraud involving Rapo & Jepsen.
Attorney Fitzpatrick reiterated to the committee the prior allegations where persons who could not register motor vehicles in Massachusetts would go to Rapo & Jepsen and become established on paper as corporations or sole proprietorships, or even business trusts. This was “one-stop shopping” where Rapo & Jepsen created paper businesses for these people charging $400 for corporate papers, a business card, and a tax identification number.
Rapo & Jepsen allegedly in many cases did not even tell their customers they were creating these legal entities in order for them to register their car illegally. Instead, these insured were simply told “We will take care of this.” These ineligible insureds simply paid their money and received commercial insurance, when in many cases, Attorney Fitzpatrick stated, they had no such businesses underlying their sham corporation, trust or business proprietorship.
Attorney Fitzpatrick then discussed the SIU investigations of the insureds of Rapo & Jepsen and the uncovering of the practices and procedures used by Rapo & Jepsen to obtain commercial insurance policies through CAR for ineligible insureds.
Legal entities for commercial policies were ‘fictitious,’ ‘shell,’ ‘sham,’ ‘fake'”
Attorney Fitzpatrick then turned to the argument put forth by Point Insurance that “These are legal entities [that insureds have] and Arbella doesn’t understand the rules of eligibility.” Attorney Fitzpatrick stated, “This has nothing to do with eligibility.” “We [Arbella] know that these entities are whatever word you want to use ‘fictitious,’ ‘shell,’ ‘sham,’ ‘fake.'” This is not about eligibility and it is not about whether these entities exist on paper.
Attorney Fitzpatrick directed the committee to Arbella’s 76-page response and the response therein from a certain Mr. Silva, who supposedly had a corporate landscaping business for which he had registered his vehicle.
In response to Arbella’s special renewal questionnaire, responses to the following questions: “Provide a detailed description of your business?”; “How is your vehicle used in your business?”; and “If you have your own business, what is the address for your principal place of business?” were as follows: “I don’t have a business;” “My vehicle is private,” and “I have no business … registered a company to register my car.”
According to Attorney Fitzpatrick, these people were being told by Rapo & Jepsen that they needed to do this to register the car, and some believed that this is what they had to do, and did not believe they were committing any type of fraud. Others, Arbella believes, were more sophisticated and understood what was going on with their commercial registration. In either case, without a detailed special renewal application, Arbella would not be able to discover the information and be able to conduct further investigation to determine whether the business was a sham.
CAR has no standard commercial renewal questionnaire
As to Point Insurance’s objections as to the form of the renewal questionnaire, Attorney Fitzpatrick, noted there is no standard application or renewal questionnaire required by CAR for commercial risks. Each servicing carrier is allowed to draft its own.
Directing her argument to the business guidelines that Point Insurance had argued were unreasonable, Attorney Fitzpatrick stated that Arbella had produced these guidelines because the agency had requested them. Additionally, Point Insurance had raised no objection to the now objectionable guidelines when they signed an ERP contract with Arbella that incorporated the guidelines.
Point Insurance not doing its part to help Arbella fight fraud
In closing, Attorney Fitzpatrick emphasized that Point Insurance, at the time of purchase, was aware that the Rapo & Jepsen book of business had a number of fraudulent policies. Because of these fraudulent policies, the argument that the law requires Arbella to treat Point Insurance exactly as it treats other insurance is not correct.
The law, in Arbella’s opinion, requires it to fight fraud and since this agency knew this book of business had fraudulently obtained policies and it cannot complain about the actions taken by Arbella to avoid these fraudulent policies being renewed.
Initially, according to Attorney Fitzpatrick, Arbella had hoped that Point Insurance would partner with it to fight fraud in this book of business. But, what Arbella has in fact found, said Attorney Fitzpatrick, is that Point Insurance has done nothing. Rather, the same fraudulent policies placed with Arbella by Rapo & Jepsen, are being renewed by Point Insurance, while policies cancelled by Arbella for fraud, are rewritten by Point Insurance without any effort by the agency to determine the underlying validity of the businesses.
Attorney Fitzpatrick concluded her presentation arguing that under CAR Rule 14, which is applicable to commercial exclusive representative producers, Point Insurance had the obligation to fight fraud and verify the information relating to its insureds. On this issue Arbella had tried to work with Point Insurance, had offered to meet, but instead was subject to a complaint by Point Insurance before the Division of Insurance. When Arbella again offered to meet to clarify some of the issues, it was sued in Superior Court. At that point Arbella decided to take no further action.
Ten votes by Market Review Committee in favor of Arbella and against Point Insurance
Following the completion of her argument, no additional questions were submitted to Arbella’s counsel, Roberta Fitzpatrick. At that point, the committee’s chairperson, Mr. Boynton, called for discussion on the Request for Review. Committee member Sumner Gilman advised, that he was disposed to make a motion to deny the Request for Review, based upon his view that the actions taken by Arbella seemed reasonable. He also noted that Point Insurance’s owner had worked at Rapo & Jepsen for a number of years before purchasing the agency.
After some discussion, the Market Review Committee Chair indicated, that instead of voting on Point Insurance’s Request for Relief with one vote for or against, the committee would vote individually on each of the ten requests for relief asked for by Point Insurance. CAR counsel concurred in this procedure and the committee voted on each of the requests listed earlier in this article.
On the votes taken on requests two through nine, the committee unanimously voted to deny Point Insurance’s requests for relief. The committee also denied requests one and ten with one member filing a dissenting vote.
Following the ten separate votes, the chair of the Market Review Committee advised Point Insurance of its right to appeal within thirty days to the Governing Committee Review Panel. If the Governing Committee Review Panel upholds the decision of the Market Review Committee, any further appeal would be heard by the Division of Insurance.
Agency Checklists will follow and report on any appeals
If, as expected, Point Insurance exercises its rights to appeal the Market Review Committee’s decision to a Governing Committee Review Panel, Agency Checklists will report on that proceeding as well as keep our readers informed of any further proceedings.
Background of dispute between Arbella and Point Insurance
For readers interested in the Arbella/Point Insurance dispute’s history, since May 2016, Agency Checklists has published six in-depth article on the matter. Besides Agency Checklists’ January 10 article on Point Insurance’s complaint article on Point Insurance’s complaint, “Rapo & Jepsen Round Two: Agency’s Purchaser Files In Court, At The DOI, And At CAR, Actions Alleging Discrimination by Arbella,” the original five articles explain the original allegations of Arbella against Rapo & Jepsen:
- May 3, 2016, 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.
