The long saga of litigation and administrative charges between Point Insurance and Arbella may be ending. The Division of Insurance last week denied the remaining complaint by Point against Arbella, alleging that Arbella had engaged in “unfair, unreasonable or improper practices in connection with the renewal of commercial motor vehicle insurance policies issued to Point customers.”
For a short primer of the issues involving Point Insurance and Arbella’s troubled relationship, See Agency Checklists’ article of March 20, 2018, “CAR Review Panel Upholds Cancellation Of Point Insurance’s Commercial Lines Contract.”
Purchase of a troubled book of business starts Point’s troubles with Arbella
Point Insurance purchased the book of business of Rapo & Jepsen Insurance Services as Arbella was seeking to have that agency’s commercial appointment terminated at CAR. Arbella alleged, with good evidence that Rapo & Jepsen had engaged in a massive fraud of allowing unlicensed and unqualified operators to obtain commercial insurance through Arbella, Rapo & Jepsen’s commercial servicing carrier. For the details of the alleged fraud, see Agency Checklists’ article of April 4, 2017, “DOI Moves To Revoke John Rapo’s And Rapo & Jepsen’s Producer Licenses And Impose Fines,” and the related linked therein.
At the same time, the market review committee of CAR was addressing the revocation of Rapo & Jepsen’s commercial lines appointment to Arbella, Rapo & Jepsen and Point Insurance, a new corporation set up by an employee of Rapo & Jepsen, was in the process of buying Rapo & Jepsen insurance assets.
Following the execution of a purchase and sale agreement, Point immediately sought commercial lines exclusive designated producer status with CAR and, after an assignment of its newly acquired book of business back to Arbella, engaged in negotiations with Arbella to agree on a protocol to clean up the book of business on an ongoing basis.
The protocols that Point agreed to with Arbella quickly became a major sticking point between the two parties. Arbella re-underwrote the book of business requiring a new business application and investigation of the underlying entities that Point was submitting as commercial risks. This practice soon led to Point filing a lawsuit against Arbella and proceedings before the market review committee of CAR with Arbella seeking successfully to terminate Point’s commercial auto exclusive representative producer contract.
In March 2018, the Division of Insurance upheld Arbella’s termination of Point’s contract. See Agency Checklists’ article of March 19, 2019, “In A 23-Page Decision, Massachusetts Division Of Insurance Denies Point Insurance’s Appeal Against Arbella.”
Second complaint by Point filed against Arbella under CAR enabling statute
Separate and distinct from its appeal of Arbella’s contract termination, Point had filed on December 14, 2018, a complaint under the Commonwealth Automobile Reinsurers Enabling Act, G.L.c.175, § 113H. This law allows any insurer or producer to file a complaint with the Commissioner of insurance where the allegations are that a member of CAR, such as Arbella, has committed unfair, unreasonable or improper practices in the course of the operation of the residual market. In this case, the residual market involved the commercial pool, which still has the original format of the assignment of agents to servicing carriers rather than as in the MAIP, the assignment of insureds to servicing carriers.
Point had four request to the Commissioner for relief against Arbella
The complaint to the Commissioner consisted of four requests for relief.
- Point’s first request asked the Commissioner to find that Arbella, by requiring Point’s “commercial auto” customers renewing their policies to complete new applications and driver exclusion forms, engaged in an unfair, unreasonable, and improper practice. Point argued that absent direction from CAR that such requirements apply to all servicing carriers and agencies Arbella’s requirement unfairly singled out Point’s customers for “special handling.”
- Point’s second request sought to have the Commissioner prohibit Arbella from requiring new applications and driver exclusion forms as a condition for renewing Point’s commercial auto insureds until CAR established a uniform rule applicable to all servicing carriers and ERPs.
- Point’s third request asked the Commissioner to order Arbella to reimburse Point for losses it suffered because Arbella refused to renew policies of customers who failed to complete the new application and driver exclusion forms that Point claimed were improperly required from its customers, and no one else’s customers.
- In its fourth and final request, Point requested the Commissioner to permit Point to conduct discovery of whether Arbella had required that customers of other agencies for which Arbella acted as a commercial servicing carrier to complete new applications and driver exclusion forms as a condition precedent to Arbella renewing their existing commercial auto policies.
CAR rule change moots Point’s complaint about uniform standards
While Point’s complaint was pending before the Division of Insurance, CAR had established the Commercial Auto Residual Market Standards Subcommittee. CAR charged this subcommittee with recommending, among other things, underwriting standards, including servicing carrier procedures.
Among other recommendations, this subcommittee moved CAR to adopt a rule change “to validate licensing at inception and at renewal, regardless of classification, to ensure consistent servicing carrier procedures.” (See Agency Checklists’ article of February 2, 2019, “The CAR Committee Working to Tighten Underwriting Controls to Reduce The Residual Market Deficit”)
As a result of this subcommittee’s suggestion, CAR submitted to the Commissioner of Insurance a proposed rule change regarding the meaning of an “eligible risk.”
On July 23, 2019, CAR notified its members that the Commissioner had approved the amendments to its Rule 2 of Operations This amendment changed the definition of “eligible risk” to include the statutory language allowed in the CAR enabling act to exclude “any person who usually drives the motor vehicle must hold or be eligible to obtain a valid operator’s licenses.”
Under this rule change, limited servicing carriers, such as Arbella, and ERPs, must verify the eligibility of new and renewal applicants to purchase commercial motor vehicle insurance in the residual market.
This rule change addressed Point’s complaint as to two of Point’s requests for relief. Upon the approval of the rule changes, the hearing officer obtained an agreement from the parties that the rule change at CAR had addressed Point’s complaint regarding the procedure that Arbella had applied regarding the verification of eligible risks. The parties further agreed that, based upon this rule change, this portion of Point’s complaint was now moot, and the hearing officers took no further action on it.
Point seeks further relief from the Commissioner
Point argued that while it had agreed that the rule change satisfied parts of its first complaint, the rule change did not resolve its other claims for relief set out in this complaint.
Point Insurance claimed that the Commissioner should still hold a hearing notwithstanding the rule change to determine:
- Point’s damages from Arbella’s alleged unfair, unreasonable, and improper underwriting actions causing Point to lose the bulk of its commercial auto placements; and,
- To allow Point to conduct discovery of Arbella’s underwriting practices to determine if Arbella applied the requirements for new applications on renewals and driver exclusion forms to any other ERPs or agencies beside Point.
Point’s claim for damages nixed because of a prior court precedent
The hearing officer denied considering Point’s claim for monetary damages against Arbella under the statute that allowed the Commissioner to enter orders against servicing carriers that he found had acted in an unfair, unreasonable, or improper manner concerning CAR’s rules or plan. The hearing officer noted that the Supreme Judicial Court in 2004, in a complaint between two insurers, Hanover and Arbella, under this same statutory provision had ruled that it was “not persuaded that absent express legislative authority, the Commissioner’s authority to enter ‘appropriate orders’ [under this statute] extends to the award of other types of monetary damages.”
The hearing officer found no basis to deviate from that decision under the circumstances of Points complaint.
Point’s discovery request denied based on the prior appeal of its contract cancellation
On Point’s fourth and final request for relief, Point had requested permission from the hearing officer to discover information from Arbella. Pointed wanted to inquire about whether Arbella had required new applications and driver exclusion forms from insureds renewing commercial auto policies with other ERPs or agents.
Arbella and CAR argued that the major portion of Point’s complaint was resolved with the July 23, 2019 rule change requiring servicing carriers to apply uniform requirements to determine the eligibility of coverage. Thus, there was no ongoing dispute. They further argued that this same discovery request was effectively resolved against Point in Point’s prior unsuccessful appeal to the Commissioner on Arbella canceling Point’s commercial lines ERP contract.
The hearing officer agreed with Arbella and CAR and ruled that Point’s request for discovery of Arbela’s practices regarding other ERPs submitting initial or renewal applications was raised in the earlier proceeding at CAR that was appealed to the Commissioner and had been addressed in that decision.
The final decision by the hearing officer
Based on her rulings, the hearing officer’s final decision was: “Point’s request for a hearing pursuant to G.L. c. 175, §113H (E), ¶9 is hereby dismissed.”
Point may appeal to the decision to the Superior Court
Under the law applicable to Point’s complaint, 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.
Point has thirty days from October 21, 2019, to appeal this decision to the Superior Court.
