As previously reported in Agency Checklists’ January 30, 2017 article, “Point Insurance Takes Its Appeal To The CAR Governing Review Panel This Week,” Point Insurance had its hearing before a Governing Committee Review Panel of Commonwealth Automobile Reinsurers (CAR) on January 31, 2017 as scheduled.
The appeal sought to overturn CAR’s Market Review Committee’s denial of Point Insurance’s request for relief against its commercial auto servicing carrier, Arbella Protection Insurance Company (Arbella). See Agency Checklist’s January 17, 2017 article “How CAR’s Market Review Committee Voted On Rapo & Jepsen’s Buyer’s Request For Relief Against Arbella” in which the Review Panel denied Point Insurance’s appeal by a 3-0 vote.
Appeal of the Market Review Committee’s decision denying Point Insurance relief
At its January 12, 2017 meeting, the Market Review Committee heard the appeal of Point Insurance against Arbella. After hearing the matter on arguments from counsel for Point Insurance and Arbella, the Market Review Committee had taken specific votes on Point Insurance’s request for findings that ten practices and procedures employed by Arbella, in dealing with Point Insurance and its customers, constituted 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.
The Market Review Committee ruled against Point Insurance on all ten points. Point Insurance then appealed to a Governing Committee Review Panel at CAR.
The Governing Committee Review Panel’s role
The Governing Committee Review Panel is a sub-committee of the CAR Governing Committee that has the responsibility to review appeals made by member companies and licensed producers aggrieved by any alleged unfair, unreasonable, or improper practice of CAR or a Member with respect to the operation of CAR.
The Review Panel consists of three members of the CAR Governing Committee. The decisions of the Review Panel are considered to be those of the full Governing Committee and can be appealed directly to the Commissioner of Insurance.
Point Insurance’s argument to the Review Panel
At the January 31 hearing of the Review Panel, counsel for Point Insurance, Joshua Lewin of Bowditch and Dewey, argued that its appeal “raises important issue in the residual market…” as to “whether a servicing carrier can decide for itself what it thinks eligibility requirements should be for a commercial line of policy and then impose those requirements on an ERP, or whether that is within the domain of CAR and the Governing Committee.”
Additionally, Attorney Lewin stated, “[what] this appeal raises is whether a servicing carrier can create procedures that it imposes on an ERP that no other ERP either in the residual market or an agent in the voluntary market would have to comply with for purposes of issuing a commercial policy.”
Attorney Lewin further argued that “The problem here is you have an un-level playing field that people can get insurance from Point’s competitors that they can’t get from Point because Arbella says so.” In particular, Attorney Lewin stated that it was unfair to Point Insurance that:
Other prospective customers can be insured with Safety or Commerce. Their policies are being played right in the CAR pools of CAR’s bearing the risk, but that same risk can’t be issued by Point and insured by Arbella. Really, what we’re seeking here is just a level playing field, that everybody plays by the same rules.”
From these points Attorney Lewin went into the argument that the practices instituted by Arbella were not valid under CAR Rules and Massachusetts law. In Attorney Lewin’s opinion, CAR Rules only require that a private passenger motor vehicle be owned by a legal entity, such as a corporation, to qualify for a commercial policy. Attorney Lewin summed up this argument as:
It’s pretty straight forward. A commercial vehicle is any vehicle that is not owned by a person. That’s it. If you fall into that definition, you’re eligible for a commercial automobile policy under the rules of operation.
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It [the CAR Rule] doesn’t talk about the company has to earn a profit or that the entity has to engage in any particular type of business, has to be more than 50% business versus personal, none of that. It’s very simple. If it’s owned by a company, it gets a commercial policy. If it’s owned by an individual, it gets a personal policy.”
Attorney Lewin’s argument was that based on this simple requirement of mere corporate existence, Arbella’s actions to investigate whether an insured’s corporation “actually engages in some sort of commercial activity” is outside CAR’s eligibility requirements.
If this is a problem, according to Attorney Lewin, “The solution is for CAR to amend its rules, if in fact, CAR thinks that that shouldn’t be the case.”
Attorney Lewin then went on to Arbella’s handling of foreign licenses. He admitted that, “this is a messy issue” but suggested that it was up to CAR to, “issue and promulgate clear regulations so that there’s just an even playing field, so that the rules are clear between carriers because right now what you’ve got is a system where different carriers are imposing different rules and eligibility requirements.”
In conclusion, Attorney Lewin requested that, “the panel reverse the decision of the Market Review Panel and find that Arbella’s conduct, no matter whether you agree with their ultimate goals and policies, under the existing rules as they are today, are unfair and improper because they’re in contravention of the rules.”.
Arbella’s response to the Review Panel
Attorney Roberta Fitzpatrick, representing Arbella, repeated her winning argument from the Market Review Committee that, “the fact that this agency is being treated differently is because it is different than any other agency. It’s an agency whose principal was a five-year employee of an ERP that was terminated for fraud. It’s an agency that acquired a book of business that was known by the purchaser to contain fraudulent policies.”
Attorney Fitzpatrick emphasized that Attorney Lewin was talking about the rules because if she were Attorney Lewin, , “I’d want to talk about the rules, too, and I wouldn’t want to talk about the fact that there’s fraud in this book of business and that this business presents challenges to the industry, challenges to its servicing carrier, and it is unique, and it does require greater scrutiny.”
Attorney Fitzpatrick went on to argue that:
What this is not about is this is not about the eligibility rules. This has nothing to do with the eligibility rules. This is about an agency that contains accounts that were created to enable persons who were not eligible to register their vehicles and not even eligible to drive on the roads within the Commonwealth of Massachusetts, to create businesses to do an end run around the licensing and registration rules.”
Attorney Fitzpatrick then went on to detail various issues in response to Point Insurance arguments pointing out:
- Point Insurance is an agency that has upwards of 75 to 80% PPT [private passenger type] business in its commercial book in comparison to roughly 10 to 12% PPT business for the average commercial producer’s book of business.
- The agency has over 600 trusts that are holding commercial policies.
- Many of the insureds owning these allegedly commercial vehicles do not even know what a trust is or that they have one.
- Many of the businesses that insureds of Point Insurance have that were set up by its predecessor, Rapo & Jepsen, only exist on paper for the purpose of insuring ineligible operators.
- Arbella is only trying to establish which Point Insurance’s insureds have legitimate businesses and which do not.
- There is no commercial rule prohibiting the use of a commercial renewal questionnaire such as the one utilized here by Arbella for Point Insurance’s insureds.
Attorney Fitzpatrick finished stating, “Yes, Arbella is treating this book of business differently.” However, she then explained:
What I would say to that is it is appropriate for Arbella or any servicing carrier that has the type of evidence that we have with respect to this particular book of business to use all of the tools available to it to uncover that fraud. Frankly, the producer [Point Insurance] has the same obligation, to verify the information and ensure that these risks belong in the current marketplace.”
Decision of the Governing Committee Review Panel
Following the arguments of counsel, the Governing Committee Review Panel discussed the procedures it would following on voting on Point Insurance’s appeal.
As opposed to the Market Review Committee, that voted on each Point Insurance’s ten separate complaints against insurance company, the Review Panel voted to decide the appeal as a single vote to reverse or uphold the Market Review Committee’s decision.
Very quickly, in viewing the comments on the issue, the sentiment of the Review Panel became clear with Governing Committee Review Panel members noting that:
- “Arbella, in my view did a good job identifying an issue and then using tools that are available to all the servicing carriers to try to address that fraud.”
- “I don’t see there’s any issue at all with using a renewal questionnaire and modifying that renewal questionnaire to address specific uniqueness about an agency or a situation. Many companies do that.”
- “I think that they [Arbella] personally should be praised for their efforts in trying to address this issue.”
- “I really don’t see Arbella acting out of line, especially with the history that’s involved with this situation as was pointed out.”
- “I feel like they did a great job trying to get to the bottom of this, find out why this was happening, and to address it. I don’t think their efforts were unfair. I think they were justified.”
Ultimately, the Review Panel voted unanimously to uphold the Market Review Committee denial of Point Insurance’s appeal.
History of Point Insurance, Arbella, and Rapo & Jepsen dispute
Point Insurance purchased the insurance business of Rapo & Jepsen after Arbella had cancelled Rapo & Jepsen commercial exclusive representative producer contract and just after the Market Review Committee had upheld Arbella’s cancellation.
The details of Arbella’s allegations and Rapo & Jepsen’ defense appear in the following Agency Checklists’ articles:
- 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.
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. After obtaining a business entity producer’s license, Point pursued a commercial appointment through CAR.
In June 2016, Rapo & Jepsen and Point executed a purchase and sale agreement, whereby Point acquired Rapo & Jepsen’s 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 & 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.
Following the purchase of the Rapo & Jepsen book of business by Point Insurance, Arbella continued with its investigation into what it called “sham” or “paper” corporate entities that had been set up by Rapo & Jepsen for ineligible insureds. Arbella also established the intensive and individualized underwriting for Point Insurance’s book of business that Point Insurance has appealed to CAR.
Agency Checklists will keep you posted
The Review Panel vote was most likely just a way-station on Point Insurance’s appeal to the Commissioner of Insurance. Agency Checklists will monitor any appeal proceedings before the Division of Insurance and will keep our readers updated on any developments.