On March 11, 2019, the Division of Insurance hearing officer Jean Farrington issued a 23-page ruling denying the appeal by Point Insurance (“Point”), an exclusive representative producer, against its assigned commercial automobile servicing carrier, Arbella. Point’s appeal to the Division of Insurance had sought an independent review of the prior decisions of the Market Review Committee and the Governing Committee Review Panel of Commonwealth Automobile Reinsurers (“CAR”).
The Arbella-Point dispute arose out of Point’s purchase of the Rapo-Jepsen agency
After an extensive investigation, Arbella terminated its exclusive representative producer’s commercial contract with Rapo & Jepsen Insurance Services, Inc. (“Rapo & Jepsen”) The major ground Arbella alleged was that Rapo & Jepsen was fraudulently using its exclusive representative producer contract to write commercial auto insurance policies using false information, shell corporations and bogus business trusts. The Market Review Committee upheld Arbella’s cancellation of Rapo & Jepsen’s, and the agency appealed to the Governing Committee Review Panel. See Agency Checklists’ article of June 28, 2016, “Arbella’s Cancellation of Rapo & Jepsen Upheld By CAR.”
While Rapo & Jepsen’s appeal was pending, Point, headed by a former Rapo & Jepsen employee, bought the Rapo & Jepsen book of business. Following the sale, Rapo & Jepsen dropped its appeal of Arbella’s contract cancellation.
When Point applied for an exclusive representative producer contract, CAR assigned it to Arbella.
In September 2016, three months after Point’s appointment to Arbella, Arbella began sending Point’s renewal customers a new “Commercial Auto Renewal Application” form and a “Commercial Auto Renewal Questionnaire” before renewal. The avowed purpose of the questionnaires and application was to root out fraud in the Point book of business. Based on the responses or lack of response to these forms Arbella sent nonrenewal notices to many of Point’s commercial customers.
On December 15, 2016, Point submitted a “Request for Review/Relief” to CAR. Point claimed that Arbella was hindering its ability to operate in the residual market with its underwriting actions. After unsuccessful hearings before the Market Review Committee and a Governing Committee Review Panel, Point brought the present appeal to the Commissioner of Insurance. See Agency Checklists’ article of February 7, 2017, “Point Insurance Loses Appeal to CAR Review Panel; Next Stop Commissioner of Insurance.”
Allegations before the Division of Insurance
Point submitted its appeal from CAR’s final adverse decision of the CAR Governing Committee to the Commissioner of Insurance on February 2, 2017, alleging that Arbella had engaged in unfair, unreasonable or improper practices in connection with the sale or renewal of commercial motor vehicle insurance policies covering vehicles registered to business enterprises. Point claimed these illegal practices included:
- Arbella’s use of renewal applications for its commercial policyholders and its requirement that Point verify certain information on applications;
- Arbella imposing application or renewal procedures on Point Insurance and its commercial customers that it does not apply to other ERPs or their customers;
- Arbella’s procedures applicable to Point Insurance conflict with CAR Rules.
In its appeal, Point asked the Commissioner to issue permanent orders enjoining Arbella from continuing its allegedly improper practices and ordering Arbella to pay restitution to Point as well as its attorney’s fees.
Point also, in initiating its appeal, had moved for temporary injunctive relief against Arbella’s and requested an emergency hearing on that motion before the Division.
Point based all its requests for relief on the provisions of CAR Rule 20, which states that in an appeal from a CAR Governing Committee decision, “[t]he Commissioner may approve, modify, amend or disapprove the ruling or direct the Governing Committee to reconsider the ruling. .. [and] may issue any other appropriate order, including granting the aggrieved party a new review.”
Hearing officer denies Points request for de novo hearings and a preliminary injunction
In the first instance, the hearing officer denied Point’s preliminary injunction request ruling that “Neither the Massachusetts Administrative Procedures Act, M.G.L. c. 30A, nor any provision in M.G.L. c. 175 or the Code of Massachusetts Regulations grants the Division the authority to provide a preliminary injunction or other equitable relief to [Point].”
On April 14, 2017, at a prehearing conference involving Point, CAR, and Arbella, the hearing officer declined to convene a new or de novo hearing to Points allegations against Arbella because there was no dispute over the material facts in the record before CAR. Instead, the hearing officer advised she would review of the entire record of the proceedings before CAR, including all filings, exhibits, transcripts of hearings, and decisions of the Governing Committee Review Panel and the Market Review Committee.
The hearing advised that on a Rule 20 appeal, the issue before the Division is “whether, on the evidence before it, CAR correctly applied its rules.”
The hearing officer then gave the Point, CAR, and Arbella until April 28, 2017, to submit additional memoranda before she designated the administrative record in the appeal closed.
The decision of the hearing officer finds no unfair, unreasonable, or improper actions
Nearly twenty-three months elapsed between the closing of the record in the appeal on April 28, 2017, and the issuance of the decision on March 11, 2019. Ultimately, after reviewing the evidence before CAR on Point’s allegations, the hearing officer made four specific findings all of which were adverse to Point.
- The Proceedings at CAR Were Consistent with Its Adjudicatory Obligations Under the CAR Rules.
In this first instance, the hearing officer found that Point had been provided a full, fair, and unbiased forum with an opportunity to fairly present its claims and request for relief at CAR against Arbella. The hearing officer found that the Governing Committee Review Panel which provides the final appeal at had fairly considered each of the ten issues Point had raised with both Point and Arbella being allowed full and ample time to argue their respective positions.
- Arbella’s use of correspondence, forms, and applications with Point and its customers, and Arbella’s requirements that Point follow certain procedures were not improper, unfair, or unreasonable.
Point argued to the hearing officer that Arbella’s use of the parties’ limited servicing carrier agreement, its procedures, and forms were arbitrary and improper because they included “a series of onerous terms, conditions, and procedures designed to set up Point for failure and with which no other agent in the Commonwealth of Massachusetts must comply.”
The hearing officer found that Arbella had indicated from the beginning of the relationship that it was intent on taking steps to ensure that Point’s commercial customers were “legitimate commercial entities” and not simply created because the operators were ineligible for private passenger automobile insurance or Massachusetts driver’s licenses. The hearing officer pointed out that Point for its part initially sought additional policies and procedures from Arbella to clarify Arbella’s expectations for Point servicing the Rapo & Jepsen book of business to avoid future problems.
The hearing officer noted that Point later objected in its appeal to CAR that Arbella’s imposed terms and conditions, policies and procedures, and correspondence, forms, and applications were unfair unreasonable and improper. She also noted thought that there was nothing in the record showing that Point raised these concerns—including its assertion that Arbella should not be allowed to use forms and correspondence that it does not use with the customers of other insurance agencies—at the time of Point’s appointment to Arbella as ERP or its signing of the limited servicing carrier agreement.
Based on this record, the hearing officer found that CAR had properly determined that the terms and conditions Arbella had imposed on Point’s appointment as an ERP, and Arbella’s use of unique correspondence, forms, and applications with Point and its customers were not improper, unfair, or unreasonable.
- Arbella’s use of the Commercial Auto Renewal Application and Renewal Questionnaire and the nonrenewal and denial of certain Point commercial customers were not improper, unfair, or unreasonable.
Point argued to the hearing officer that Arbella’s use of a renewal application with its customers that differs from that used with commercial customers of other insurance companies violated CAR Rule 30.A.4.h. This rule states that an Assigned Risk Company (“ARC”) must use the policy forms, endorsements, new business applications and renewal questionnaires filed by the MAIP and approved by the Commissioner for use in private passenger motor vehicle insurance.
Additionally, Point argued that Arbella’s renewal forms which were unique only to Point’s customers are arbitrary, confusing and ambiguous and runs afoul of the CAR Rules, citing Rule 2, which defines a “Commercial Motor Vehicle” as “any insurable motor vehicle not included in the definition of Private Passenger Motor Vehicle contained in CAR Rule 22.”
The hearing officer summed up Point’s view as being that the existence of a corporate entity to register a vehicle is the sole eligibility criterion for commercial insurance in the residual market. Based on that position, Point argued that the questions Arbella asked on the renewal application did not apply to the eligibility requirements for a commercial policy under the CAR Rules.
This position of Point contrasted with the position of CAR that the inherent premise that “commercial automobile insurance should be available to those engaged in commercial activities” and Arbella’s position that higher scrutiny and additional documentation is warranted since Point acquired a book of business of a prior ERP that it previously terminated for fraud.
The hearing officer sided with Arbella and found against Point stating:
As discussed above, Arbella was forthright with Point that it planned to ensure that Point’s commercial customers were not created solely because the operators were ineligible for private passenger automobile insurance or Massachusetts driver’s licenses…Arbella’s position that these questionnaires and forms are used to determine eligibility for a commercial policy and to evaluate the risks posed by drivers who are not properly licensed, engaging in fraud, or who are not commercial risks is persuasive.
- Arbella’s treatment of Point’s customers, the use of its SIU with Point’s customers and its underwriting practices were not improper, unfair, or unreasonable.
In its submission to the hearing officer and at CAR, Point challenged Arbella’s use of its SIU Department as unfair harassment and intimidation and requested orders limiting Arbella’s use of its SIU Department. Arbella contended that the SIU Department’s involvement in Point’s book of business was solely due to its having purchased the Rapo & Jepsen book of business which Arbella previously terminated for fraud. The hearing officer found Arbella had been upfront with Point about its concerns about fraud in the Rapo & Jepsen book of business at the time of the agency’s exclusive representative producer appointment.
The hearing officer found the record fully supported CAR’s determination that these investigative measures were not unfair, unreasonable, or improper for Arbella to properly assess whether or not a customer was an eligible risk for the residual market and to investigate possible insurance fraud.
The final order of the hearing officer
The hearing officer’s final ruling was simple and direct:
For the above-stated reasons, I find that CAR’s decision on Point’s request for review should be affirmed. The appeal filed by Point Insurance Agency of a January 2017 decision of the CAR Governing Committee is hereby denied.
Point has an appeal to the Superior Court under CAR’s enabling statute
Under the CAR enabling statute M.G.L. c. 175, § 113H, “Any ruling, order or decision of the Commissioner” involving CAR is subject to review by appeal to the Suffolk Superior Court.
However, by statute, the court bases its actions solely on the record of the proceeding before the Commissioner. With that limitation, the court does have the right to “modify, amend, annul, review or affirm [the Commissioner’s] action, order, finding or decision” and to “review all questions of fact and law involved” in the decision.
Agency Checklists will keep its readers posted.
