On February 28, 2017, Jason Calianos of the Calianos Insurance Agency in Roxbury continued his ongoing dispute with Commonwealth Automobile Reinsurers’ (CAR) by requesting a hearing on CAR’s proposed amendment to Rule 31 of the Massachusetts Automobile Insurance Plan’s (MAIP) Rules of Operation.
CAR rule amendment deals with commission offsets for unforwarded premiums
On February 22, 2017, CAR published Bulletin No. 1032 with the proposed text of the amended Rule 31, adding a paragraph stating:
Where an ARP [assigned risk producer] has failed to forward a premium payment to an ARC [assigned risk carrier] as required by this Rule, the ARC may secure the payment of that premium in a manner that is consistent with that in which the ARC secures premium payments not forwarded timely to the company by a producer with which the ARC has a voluntary contract.
Amendment to Rule 31 part of commission offset dispute between Calianos Agency and Commerce
The Calianos Agency has had two major disputes with CAR.
In 2013, the Division of Insurance reversed the actions of CAR decertifying the Calianos Agency as an ARP and cancelling the agency’s commercial exclusive representative producer (ERP) , in a scathing opinion. The Division’s decision questioned the fairness of CAR’s hearing process and suggested changes to CAR’s hearing procedures involving contract cancellation or producer de-certifications. CAR, as a result this decision, revamped its hearing procedures for both ERPs and ARPs. See Agency Checklists’ articles of December 15, 2013, “In A 46 Page Decision, Mass. DOI Reverses Calianos Agency’s ERP Cancellation and ARP Decertification by CAR;”
The second and continuing dispute between CAR and the Calianos Agency arose over the practice of the Commerce Insurance Company (Commerce) offsetting premiums the Calianos Agency reported as collected that Commerce did not receive against the agency’s commissions.
The Calianos Agency filed a request for relief before CAR’s Market Review Committee alleging that Commerce had wrongfully set off commissions due the agency for payments on assigned risk policies after the agency reported receipt of policy payment and mailed the payment to Commerce. In certain cases, the agency alleged that Commerce misplaced or misapplied the payments and then charged back the agency for the missing payment by offsetting the payment against the agency’s commissions. And the agency claimed that Commerce had conducted an unauthorized investigation of the agency. See Agency Checklists’ article of April 5, 2016, “CAR Market Review Committee To Hear Assigned Risk Commission Setoff Dispute;” and April 26, 2016, “CAR Hears Calianos Agency Complaints Against Commerce for Withholding Commissions.”
Dispute between Calianos Agency and Commerce cause request for results in set up of Ad Hoc Committee on setoff issue
The Market Review Committee ultimately found that Commerce’s commissioning practices were neither unfair, unreasonable nor improper. After the agency’s appeal to a Governing Committee Review Panel was denied, the agency filed an appeal to the Division of Insurance that is pending.
However, during the proceedings before the Market Review Committee Commerce suggested that the rule relating to premium payments due from an ARP was not complete. The rule stated that when a premium payment is made to an ARP, the ARP must report the premium to the ARC within two business days. However, the rule did not address the case when the reported premium was not received by the ARC within the required time-frame, or what the ARC’s options might be to collect the unreceived premium.
In order to clarify the rule, Commerce requested an appropriate CAR committee address the need for a rule change.
Ad Hoc Premium and Commission Payment Practices Committee established
In response to Commerce pointing out the possible incompleteness of CAR’s rule on premium payments, CAR convened a twelve-member committee designated as the “Ad Hoc Premium and Commission Payment Practices Committee.” CAR charged the committee, chaired by Sumner Gilman of Economy Insurance, to consider:
- Common industry premium payment practices, including the receipt and posting of premium payments received in a producer’s office on MAIP accounts;
- Common industry commission practices as they may pertain to the MAIP, including the netting of outstanding premium payments received by an ARC with agency earned commission dollars;
- Commissioning limitations, if any, that should be considered for MAIP business and ARPs with whom the ARC has no voluntary agency contract; and
- MAIP Rule and/or procedures manual language, if any, that may require amendment.
Ad Hoc Committee surveys ARC practices, hears from Mr. Calianos, and recommends rule amendment
The Ad Hoc Committee surveyed the existing practices among ARCs relating to premium collection practices for reported by unreceived premiums and held three meetings.
At the final meeting of the Ad Hoc Committee, Mr. Calianos appeared and put on the record his agency’s concerns that:
- the Ad Hoc Committee had a representative of Commerce drafting the rule amendment even though the issue before the Ad Hoc Committee arose from a dispute between his agency and Commerce;
- the Ad Hoc Committee should not establish a rule change that held an ARP responsible for a premium payment not received by an ARC, as it is the consumer, not the ARP that is party to a contract with the company;
- finally, he argued that since an appeal by his agency relative to the issues being discussed by the Ad Hoc Committee was pending before the Division of Insurance, the Ad Hoc Committee should take no action until the Division decided.
Notwithstanding Mr. Calianos’ concerns, the Ad Hoc Committee adopted the proposed amendment to Rule 31, providing that an: “…ARC may secure the payment of that premium in a manner that is consistent with that in which the ARC secures premium payments not forwarded timely to the company by a producer with which the ARC has a voluntary contract.
Mr. Calianos and Calianos Insurance Agency request Commissioner to hold hearing on MAIP Rule 31 amendment
At its February 15, 2017 meeting, the CAR Governing Committee took up the recommendation of the Ad Hoc Committee for the amendment of Rule 31 to address the reported but unreceived premium issue.
Mr. Calianos spoke in opposition to the Governing Committee acting on the recommendation and advising that if the amendment were approved there would be an appeal. The Governing Committee voted with one abstention to approve the amended rule.
On February 28, 2017, Mr. Calianos and the Calianos Agency made good on their promise to appeal and filed with the Acting Commissioner, Gary Anderson, a letter stating:
Pursuant to M.G.L c. 175 § 113H and Article X of the Plan of Operation, I hereby request a hearing regarding the adoption of the Ad Hoc Committee on Premium and Commission Practices proposed change to rule 31 by the Governing Committee.
The Division of Insurance presently has taken no action, to schedule any proceedings on the Calianos Agency’s and Mr. Calianos’ requests for a hearing.
Calianos Agency’s appeal may be denied without hearing as producers and insurance agencies may have no right to request hearing on CAR rule changes
A procedural point Agency Checklist observed in Mr. Calianos’ appeal relates to who can appeal an amendment to a CAR rule.
Under Article X of the Plan of Operation cited by Mr. Calianos, request for hearing on amended rules can only be made by: “A Member Company, Association of insurance producers, or the Attorney General.” Individual producers or insurance agencies do not have a right under this Article of the Plan of Operation to request a hearing by the Commissioner for CAR rule changes.
Here, Mr. Calianos submitted his request for a hearing under Article X of the Plan of Operation and G. L. c. 175, §113H, on the letterhead of the Calianos Insurance Agency with the statement he personally requested a hearing. (“I hereby request a hearing…”)
Although the records of the Secretary of State examined by Agency Checklists identify Mr. Calianos as the president of an association of producers, the Massachusetts Urban Agent’s Association, Inc., It is not clear if this association made a timely request for a hearing on the change to Rule 31. If not, Mr. Calianos’ request for hearing may not lie because individual producers and their agencies do not seem to have any right under Article X of the Plan of Operation to require the Commissioner to hold a hearing.