On Wednesday, November 28, 2017, the Market Review Committee of Commonwealth Automobile Reinsurers (CAR) conducted an almost two and one-half hour hearing on the cancellation appeal of Point Insurance (“Point”). This hearing stems from the June 29, 2017 notice of termination of Arbella’s limited servicing carrier agreement with Point for commercial auto business. At the end of the hearing, the Market Review Committee voted unanimously to uphold Arbella’s cancellation.
Four specific rule violations heard by Committee
The Market Review Committee addressed four violations alleged in Arbella’s June 29 notice of termination charging Point had:
- failed to refrain from engaging in fraudulent activity in connection with the business of Motor Vehicle Insurance in violation of Rule 14. B.1.c.
- failed to provide a reasonable and good faith effort to verify the information provided by applicants, including licensing and rating data in violation of Rule 14. B.1.e.
- failed to notify the Servicing Carrier of Suspected Fraud in violation of Rule 14. B.1.k.
- failed to cooperate with the Servicing Carrier during its investigation in violation of Rule 14. B.1.1.
Documentary evidence submitted by Arbella and Point exceeded 1100 pages
In support of its cancellation letter Arbella’s had almost 500 pages including documentary evidence related to fifteen insureds and applicants for insurance with a transcript of an interview with each by an Arbella SIU investigator and a private detective. These transcripts of the recorded statements by Point insureds, Arbella alleged, established that Point had:
- Represented, on several occasions, that licensed Massachusetts drivers would be operating the vehicles for whom commercial policies were applied, when in fact, no validly licensed driver was going to operate the vehicle.
- Advised applicants that did not have a valid Massachusetts license to find “anyone” with a Massachusetts license and fraudulently represent that the Massachusetts license holder would be operating the vehicle to be insured.
- Represented that the vehicle was owned by a business entity when it was not. Point has also represented that operators of the vehicles owned a business when they did not.
- Had continued to commit premium fraud by advising operators that their insurance was cheaper when they represent that they have a business entity even though they do not.
- Had fraudulently represented that individuals are employees of businesses when they are not.
- Had advised insureds to continue to make the fraudulent representations these insureds had made with the Rapo & Jepsen Agency by falsely stating they owned businesses to obtain commercial auto policies; (For the history of Rapo & Jepsen, the predecessor agency to Point, see Agency Checklists’ article of May 17, 2016, “Arbella Presents Its Fraud Claims At CAR Against The Rapo & Jepsen Agency”).
- Had advised drivers that do not have a Massachusetts license or do not have businesses to make fraudulent representations in order to procure a commercial policy.
Point, for its part, submitted a 600-page response to Arbella’s cancellation documentation.
In its submission, Point states that since January 2017, it has in good faith and diligently implemented Arbella’s eligibility criteria. Moreover, Point argues, that by following Arbella’s policies and procedures and CAR rules, of the 3105 commercial policies in force from January 1, 2017 through July 31, 2017, Point only renewed or rewrote 784. The remaining 2095 of those policies were no longer with Point.
Also, in support of its defense, submitted as part of its 600-page response documentation with respect to each of the fifteen customers identified by Arbella in its submission that included (1) written statements from the insureds concerning the allegations asserted by Arbella; (2) written statements from Point stating the facts surrounding the particular transaction; and (3) statements of facts concerning the individual transactions and claimed contradictions and flaws contained in the SIU interview transcripts submitted by Arbella;
Point leads off hearing with objections to the proceeding
As the hearing began, one of the lawyers for Point, Neil F. Faigel, addressed the Committee to voice three objections to the proceeding.
The first objection by Attorney Faigel related to the subsequent documentation submitted by Arbella, in September 2017, regarding the meeting between Arbella and Point. This objection related to the provisions set down by the CAR rules that the termination notice had to specify sufficient documentation with the grounds for a proposed cancellation of an exclusive representative producer contract. Attorney Faigel argued that this subsequent information should not be considered by the Committee as it had not been included in the original termination notice.
He next argued that the documents submitted on November 17 by Arbella as additional information were not timely filed and unfairly presented under the CAR rules.
Finally, Attorney Faigel argued that the actions of CAR in approving the $580,000.00 for the reimbursement of Arbella for the investigation in the Point matter made a pre‑judgment that was unfair, under the rules, and showed that CAR had prejudged the matter. See Agency Checklists’ article of September 26, 2017, “Arbella Seeks $585,000 From CAR For Expenses In Point Agency Anti-Fraud Effort.”
The Committee neither commented on Point’s objections nor voted on them. Instead, the Committee proceeded with the hearing on Arbella’s claims against Point.
Arbella case proceeds with statements by SIU and private investigators
Arbella was represented by Attorney Frances (Fran) Robinson who first addressed Point’s counsel’s objections by stating that the CAR rules did not require that she submit each and every document with the termination notice but only sufficient information to satisfy due process and give adequate notice to Point.
On the second objection regarding the additional documents submitted on November 17th, Attorney Robinson pointed out that CAR rules allow for supplemental filings as long as they are made within five (5) business days of the hearing which was done in this case. And finally, on the third argument regarding CAR having made a pre‑judgment Arbella’s counsel argued that it was a separate matter that had nothing to do with the termination notice and that there had been no finding by CAR that there that there had been any fraud.
Arbella then presented testimony from its SIU investigator Mr. Spellman who laid out for the board some of the submissions in Arbella’s documents regarding particular insureds and Point’s actions regarding the placement of those insured.
Mr. Spellman addressed five of the fifteen insureds specified in Arbella’s submissions to support its cancellation. Mr. Spellman’s statements related to different transactions, but they ran to a type where the insureds gave Mr. Spellman statements that showed these insureds had no right to a commercial auto policy and that they had either obtained them through Point’s predecessor agency, Rapo & Jepsen, and continued through Point or had been placed with Arbella by Point.
For example, Mr. Spellman read from materials relating to his interview with one of the insureds, Mr. Andrew Kry, who had written his policy through Point with Arbella. In his interview with Mr. Spellman he stated that contrary to the application he had no business. Mr. Spellman also read into the record a proposed statement that Point had sent to Mr. Kry, after the cancellation had issued, asking him to acknowledge that everything on the application he had submitted was submitted by only him and was correct.
Mr. Spellman said that Mr. Kry would not sign the document because it contained false information and he did not believe that he should do so. Mr. Kry also had furnished Mr. Spellman with copies of text messages back and forth between Mr. Kry and a representative of Point. In those messages Mr. Kry stated he was not comfortable signing the letter because it was not true. The text from the Point representative said it was true.
After Mr. Spellman finished, Mr. Frank Hart, a private detective hired by Arbella spoke. Mr. Frank Hart, a former agent of the Bureau of Alcohol, Tobacco and Firearms, had approximately 31 years’ experience as a supervisor for the Federal Bureau of Alcohol, Tobacco and Firearms.
In his work for Arbella, Mr. Hart presented his finding on five other policies where he had attended interviews with insureds. His statements to the Committee tracked the findings Mr. Spellman had made in his interviews with Point insureds and evidenced these insureds were improperly insured by Point with commercial policies from Arbella.
Arbella describes meeting with Point
After Mr. Hart finished speaking, Mr. Spellman again took the podium to relate to the Committee the meeting with Point regarding these findings. His testimony to the Committee was that at this meeting Point was asked specifically regarding the practices that Arbella had found and whether Point condoned or had taken steps to prevent. The response from Point allegedly was that there had only been one bad employee who had caused all of this problem when the agency was run by Rapo & Jepsen and that this employee had been fired.
Mr. Spellman also pointed out that a third of the employees at Point have commercial auto policies and further noted that two of these employees had no valid Massachusetts license. Mr. Spellman also identified an employee’s wife who appeared on six difference commercial policies as the only operator.
Lastly, Mr. Spellman spoke about another employee who allowed his license to be used on a vehicle driven by an unlicensed operator who had caused an accident. The driver failed to appear for an examination under oath and, as a result, Arbella had to pay almost $5,000 to the claimant.
Arbella receives IRS subpoenas on bogus corporations
Following Mr. Spellman, Attorney Robinson pointed out to the Committee that the actions of Point’s predecessor agency, Rapo & Jepsen, and Point have had consequences outside of the Massachusetts insurance industry.
She advised the committee that Arbella has received administrative subpoenas from the Internal Revenue Service relating to corporations set up by these agencies. She estimated that there were some 10,000 employee identification numbers applied for by Rapo & Jepsen and Point for insureds to get commercial auto policies. In many cases, there have been no required Federal or State tax filings made by the persons holding these numbers. As a result, these people face potential administrative sanctions from the IRS.
Additionally, she indicated that private financial institutions have issued loans based upon representations relating to corporate entities and corporate filings made by Rapo & Jepsen and Point that have nothing to back them up. In many cases, the financial institutions are holding titles to vehicles that are supposedly owned by entities that effectively do not exist.
In return, Point responded to these arguments by stating that it has cleaned up its act and substantially complied with Arbella’s underwriting rules.
Point’s defense started with its corporate counsel, Attorney Dana Casher. Attorney Casher presented to the Committee an initial overview of the dramatic changes that had occurred to the Point book of business, as a result of the enhanced underwriting and policy cancellations and nonrenewals initiated by Arbella.
She argued from the documentation to the Committee that of the original 5646 commercial auto policies in Point’s book of business acquired from Rapo & Jepsen, by November 15, 2017, the policy demographics showed Point had complied with Arbella’s underwriting guidelines and shrunk the book. According to Point’s figures:
- Arbella renewed 1256 policies or 22% of the original 5646 risks.
- Safety Commercial Insurance wrote 2002 policies or 36% of the original risks.
- Commerce wrote 231 policies or 4% of the original risks.
- Other carriers wrote 580 policies or 10% of the original risks.
- Arbella rewrote through other agents 232 policies or 4% of the original risks.
- Cancellation totaled 519 policies or 9% of the original risks.
- Point itself rewrote through other carriers, 584 policies or 11% of the original risks.
- Uninsured risks totaled 242 policies or 4% of the original risks.
Attorney Casher’s final point to the Committee was that the fifteen cases, upon which Arbella based its cancellation upon, amounted to less than one-quarter of one percent of the 5,646 policies in force when Point Insurance purchased its book of business from Rapo & Jepsen.
Attorney Faigel argues Point had no reason to question insureds statements
Attorney Faigel then went through various documents given to the Committee arguing that in many cases there is no basis for believing that Point had any or knowledge nor any reason to question the insured’s documents or statements.
Point had given responses to each of the fifteen insureds that Arbella had identified in its cancellation letter and Attorney Faigel identified instances where he argued insureds had submitted statements clarifying or claiming their statements had been taken out of context.
After Attorney Faigel finished, the Committee had no questions.
Short break and unanimous votes to uphold Arbella’s cancellation
After a short break, the Committee reconvened and allowed Attorney Robinson to respond to Attorney Faigel’s argument. Attorney Robinson pointed out that in each of the cases Attorney Faigel has stated that Point had no responsibility to question its insureds, however, the documents showed that it should have.
Attorney Robinson also argued that the defense’s argument that the information had been given to Point by the insureds and thus, Point had no reason to doubt it was, in Attorney Robinson’s opinion, “irrelevant.”
She points out that each of the employees of Point had been employees of Rapo & Jepsen and each of these employees was aware of the reason Rapo & Jepsen had been terminated by Arbella. Attorney Robinson argued that these employees had the responsibility to look a little more closely at the applications and documentation coming into the agency and to not simply choose to ignore what was passing in front of them.
Attorney Robinson ended her statement by pointing out that there were over 10,000 corporations filed with the Secretary of State that have been filed improperly. She argued that Rapo & Jepsen had started this illegal process, but that to this day, Point had perpetuated the process. As such, she requested that the Committee uphold the termination.
After hearing the testimony and arguments, the Committee then took up, as required by CAR Rule 20, each of the specific violations that Arbella had alleged and voted on each of the four.
On the charges brought by Arbella against Point, the Committee unanimously voted that Arbella had proven that Point Insurance had done the following:
- failed to refrain from engaging in fraudulent activity in connection with the business of Motor Vehicle Insurance;
- failed to provide a reasonable and good faith effort to verify the information provided by applicants, including licensing and rating data:
- failed to notify [Arbella] of suspected fraud:
- failed to cooperate with [Arbella] during its investigation [of fraud].
The Committee voted on all the charges that the findings of violation by Point warranted termination of its limited servicing carrier agreement with Arbella.
The final vote, also unanimous, was to uphold Arbella’s cancellation.
Thirty days to appeal to Governing Committee Review Panel
Based on the vote to uphold Arbella’ termination, Point has 30 days to appeal to a Governing Committee Review Panel. The review panel will hear Point’s appeal de novo, meaning the Review Panel will hear the evidence without regard to the decision of the Market Review Committee.
During the appeal process, under CAR rules, the cancellation is automatically stayed pending a final decision by the Review Panel.
Agency Checklists will keep you posted
Agency Checklists will monitor and update its readers of any appeal by Point to a Governing Committee Review Panel at CAR.