On April 25, 2019, after separate decisions of CAR’s market review committee and governing committee review panel upheld the termination of its commercial automobile, taxi, and limousine exclusive representative producer contracts and appointments by the Commerce Insurance Company (“Commerce”), the Shannon Insurance Agency (“Shannon Agency”), of 429 S. Washington Street, North Attleboro filed an appeal to the division of insurance.
Pending a hearing before the division, the appeal filed by the Shannon Agency will stay Commerce’s cancellation unless a division hearing officer orders the stay lifted.
Cancellation for six violations of CAR’s rules
On September 11, 2018, Commerce sent the Shannon Agency a thirty-day notice that Commerce was terminating the Shannon Agency’s commercial exclusive representative producer appointment for violations of CAR Rule 14.B.1.d., e., g., j., x., and y. The 150-page notice of termination documented, in Commerce’s opinion, the Shannon Agency’s failure to follow CAR’s rules justifying Commerce’s action to end the relationship.
On December 19, 2018, CAR’s market review committee heard on the merits the Shannon Agency’s request for review. The committee found that Commerce’s termination of the Shannon Agency’s exclusive representative producer appointments was not unfair, unreasonable or improper. Accordingly, the market review committee voted to uphold Commerce’s termination of the Shannon Agency’s commercial exclusive representative producer contracts and appointments for violations of CAR rules 14.B.1.d., e., g., j., x., and y., and deny the agency’s request for relief.
On January 8, 2019, the Shannon Agency submitted a request for relief to CAR appealing the decision of the market review committee to a three-member governing committee review panel (“review panel”).
Under CAR’s rules, the governing committee review panel conducts a de novo review. They make their decision on whether to uphold a termination based on the grounds stated in the notice of termination and the evidence presented to them. The review panel does not take into account the decision of the market review committee.
Mr. Shannon repeats his market review committee arguments for denying Commerce’s cancellation
At the March 28, 2019 hearing before the review panel, Mr. Paul Shannon of the Shannon Insurance Agency, LLC, presented the agency’s appeal.
He advised the review panel the agency had been with Commerce since 2011 and had always had a good relationship with his assigned underwriters.
However, in December 2017 when Commerce assigned a new underwriter to his agency, many large risks that had been on his books for many years and renewed by Commerce without issue, were now being scrutinized by this underwriter. Additional reports and records were requested at renewal, and if this documentation were not received, the policies would be non-renewed.
Mr. Shannon reviewed several of the specific accounts he had referenced at the market review committee meeting.
- In one example, the policy was submitted through Collaborative Edge to Commerce. However, a 5-10 day underwriting hold was placed on it, and a subsequent notice of cancellation issued by the carrier as a result of the determination that the business did not qualify for the commercial market:
- In another case, it took a substantial amount of time for the premium to be developed which impacted the securing of financing; and,
- In other instances, Commerce often refused to make the motor carrier filings that the risk required.
Mr. Shannon advised the review panel that these risks were then often able to secure insurance through another servicing carrier, frequently for less premium, and were sometimes even rewritten by Commerce with another Commerce agent, without the request for documentation as previously requested from the Shannon Agency.
Mr. Shannon stated that, based upon these apparent underwriting requirement inconsistencies, he felt that his agency had been singled out by Commerce unfairly.
Commerce presents its grounds for the review panel to uphold the agency’s cancellation
Mr. John Kelly presented Commerce’s case to the review panel, stating that the company’s notice of termination and its attachments provided clear documentation of the agency’s repeated violations of Rules 13 and 14 of CAR’s Rules of Operation. In Commerce’s opinion, this documentation formed the basis for the ERP’s termination and provided proof that the cited violations were not isolated events but rather a continuous pattern of non-compliant business practices on the part of the ERP.
Before issuing the notice of termination, Commerce attempted to remedy its concerns about the Shannon Agency. In June 2018, to assist the ERP in avoiding the termination of its appointment, Commerce provided a detailed notice to the Shannon Agency of the repeated rule violations and requested that the ERP conduct its future business with Commerce in accordance with CAR rules. However, the ERP failed to alter its business practices, and the violations continued despite warnings and offers of assistance. Based on the agency’s continued lack of compliance, Commerce issued its September 11, 2018 notice of termination.
Mr. Kelly stated that in Commerce’s opinion, the Shannon Agency had provided no defense to the violations cited in Commerce’s termination letter. Instead, the Shannon Agency attempted to deflect the agency’s noncompliance with the CAR rules with unsubstantiated, inaccurate and irrelevant allegations relative to Commerce’s intent.
Mr. Kelly emphasized that the actions of the underwriter that the Shannon Agency complained of to the review panel were consistent with the obligations of the limited servicing carrier agreement. Also, the underwriter’s requests to the Shannon Agency to provide additional reports were valid requests to determine the eligibility, proper classifications and rating of the risk. Mr. Kelly pointed out that CAR’s committees have focused on creating consistency among servicing carriers’ handling of risks in the commercial marketplace. Therefore, CAR should expect all servicing carriers to provide increased scrutiny on risks In response to Mr. Shannon’s complaints about risks subsequently written by Commerce through another agency, Mr. Kelly indicated that such successor agency, as opposed to the Shannon Agency, had properly and promptly provided all the documentation necessary for Commerce to issue the policy.
In summation, Mr. Kelly stated the termination of the Shannon Agency’s exclusive representative producer assignments was not unfair, unreasonable or improper. He requested the review panel to uphold the ruling of the market review committee to deny the ERP’s petition for relief from the termination of its commercial automobile, taxi, and limousine exclusive representative producer appointments to Commerce.
Governing Committee review panel upholds the cancellation of the Shannon Agency’s contract
After hearing from the Shannon Agency and Commerce, the review panel discussed the information presented and agreed that there exists a clear set of CAR rules to which every agent in the state of Massachusetts must adhere. To the review panel, the written documentation submitted by Commerce provided sufficient evidence that the agency had failed to adhere to those rules. As to the agency’s defense that the issues arose because a new underwriter had been assigned to the agency by Commerce, the review panel found that fact irrelevant.
Based on the sense of the review panel, CAR counsel, Benjamin Hincks, advised they should only deliberate on the alleged violations that Commerce claimed a basis for termination and determine if the violation were established and, if so, whether the violation was a valid basis for termination
Following counsel’s instructions, the review panel considered each of the actions from which the Shannon Insurance Agency requested relief, as specified in Commerce’s termination letter dated September 11, 2018. As required by CAR procedure, they voted on separate motions relating to each ground.
The review panel’s votes were all unanimous and held:
Ground one: By failing to submit for all applicants a new business application for insurance with appropriate certification forms completed in their entirety, and a signed premium finance application/agreement, if applicable, within two business days, the Shannon Insurance Agency had violated CAR Rule 14.B.1.d.
The review panel also found that Commerce had established that this violation provided a valid basis for termination of the agency.
Ground two: By failing to provide a reasonable and good faith effort to verify the information provided by the applicant, including rating and licensing data, the Shannon Agency had violated CAR Rule 14.B.1.e.
The review panel also found that Commerce had established that this violation provided a valid basis for termination of the agency.
Ground three: By failing to verify that the applicant has not been in default in the payment of any Motor Vehicle Insurance premiums in the past 24 months, the Shannon Agency had violated Rule 14.B.1.g.
The review panel also found that Commerce had established that this violation provided a valid basis for termination of the agency.
Ground four: By failing to forward all premium payments to a servicing carrier within two business days, such period not required to be extended by the servicing carrier because notwithstanding any written assurances the premium finance company had previously failed to perform its commitment, the Shannon Agency had violated CAR Rule 14.B.1.j.
The review panel also found that Commerce had established that this violation provided a valid basis for termination of the agency.
Ground five: By failing to comply with all of the conditions contained in the contract between the ERP and the servicing carrier, the Shannon Agency had violated Rule 14.B.1.x.
The review panel also found that Commerce had established that this violation provided a valid basis for termination of the agency.
Ground six: By failing to comply with all the provisions of the Rules of Operation and the Manual of Administrative Procedures, the Shannon Agency had violated Rule 14.B.1.y.
The review panel also found that Commerce had established that this violation provided a valid basis for termination of the agency.
Stay of cancellation pending further appeals to the division of insurance
After the final votes of the review panel, Attorney Hincks advised that the existing stay of the termination would remain in place during the thirty-day appeal period from the issuance of CAR’s notice of the review panel’s decision to uphold Commerce’s termination.
Based on the Shannon Agency filing an appeal within the thirty-day appeal period to the division of insurance, the stay will remain in place until the division rules on the appeal or makes an earlier decision to lift the stay during the appellate proceedings.
Agency Checklists will keep its readers informed on the appeal’s progress at the division.
