October 2019 was not a good month for two different commercial lines exclusive representative producers seeking relief from the Division of Insurance against their assigned servicing carriers. On October 21, Point Insurance had its final complaint against Arbella Insurance dismissed by a Division of Insurance hearing officer. See Agency Checklists’ article of November 5, 2019, “Division of Insurance Dismisses Point Insurance’s Complaint Against Arbella For Improper Practices.”
Also, in October, the Shannon Insurance Agency of Attleboro had its appeal from Commerce Insurance’s canceling its exclusive representative producer commercial auto contract denied by the same hearing officer, who heard the Point appeal, Jean Farrington, Esq.
Agency’s appeal at CAR’s Market Review Committee is Unsuccessful
Commerce Insurance originally canceled the Shannon Agency’s commercial auto exclusive representative producer contract on September 11, 2018.
The termination letter stated that Shannon Insurance in operating under its limited servicing carrier agreement with Commerce had violated six CAR Rules including
- CAR Rule 14.B.1.d.By failing to submit for all applicants a new business application for insurance with appropriate certification form(s), completed in their entirety, and a signed premium finance agreement, if applicable, within two business days.
- CAR Rule 14.B.1.e. By failing to provide a reasonable and good faith effort to verify the information provided by the applicants, including licensing and rating data.
- CAR Rule 14.B.1.g. By failing to verify that the applicant has not been in default in the payment of any Motor Vehicle Insurance premium in the past 24 months.
- CAR Rule 14.B.1.j. By failing to forward all premium payments to a Servicing Carrier within two business days of receipt or within the additional time allowed for qualified premium financing by a licensed premium finance company.
- CAR Rule 14.B.1.x. By failing to comply with all the conditions set out in its Limited Servicing Carrier Agreement with Commerce, namely paragraphs 1.B. and 1.H of that Agreement.
- CAR Rule 14.B.1.y. By failing to comply with all the provisions of the [CAR] Rules of Operation and the Manual of Administrative Procedures.
Shannon Insurance allowed a late appeal by the Market Review Committee
The agency had 30 days from September 11, 2018, to file a “Request for Review/Relief” form with CAR to claim review by CAR’s Market Review Committee.” After the appeal period had expired, the agency’s principal filed on November 25, 2018, a request for review/relief form.
Shannon Insurance claimed it had never received the terminations notice. Commerce claimed the agency had lost its right to appeal by its late filing and produced an affidavit with the delivery company’s tracking number evidencing delivery to the agency of the termination notice.
The Market Review Committee gave the agency a break on the late appeal and elected to hear the case on its merits.
Shannon Insurance presented its appeal through its owner, Paul Shannon, Jr. He claimed that Commerce had assigned a new underwriter who unfairly singled out the agency. According to Mr. Shannon, this underwriter had started nonrenewing risks that had been with Commerce for years by demanding fuel tax reports and trip logs that Commerce had never before required.
Mr. Shannon claimed that Commerce then wrote the same risks through another agent after nonrenewing them with Shannon Insurance.
Commerce, for its part, had an entirely different story to tell
While Commerce had assigned the agency a new underwriter, all the requests for additional reports were to validate eligibility, proper classification, and rating of the risk consistent with the standards CAR’s committees have approved to create consistency among Servicing Carriers’ handling of risks in the commercial marketplace.
The nonrenewals based on the failure to producer records occurred because Shannon Insurance did not produce the underwriting information requested. The risks that went to other agencies were written through producers who were able to submit the reports Commerce wanted before renewing these commercial risks.
Commerce also detailed before the committee the numerous violations of CAR’s Rules. Also, Commerce advised the committee that it had given the agency a written warning in June of 2018 specifying the agency’s needed actions to avoid cancellation of its contract. Commerce had afforded the agency to communicate directly with Commerce management to address the agency’s deficiencies. However, the agency never made any effort between the warning and the cancellation to correct the problems or communicate with Commerce’s management.
Finally, Commerce advised the committee that as of the hearing date, Shannon Insurance still owed a return commission balance of over $24,000 for canceled policies.
The market review committee upheld Commerce’s cancellation. See Agency Checklists’ article of January 29, 2019, “Shannon Agency Loses Appeal of Commerce’s Termination of Its Commercial ERP Contract.”
Shannon Insurance’s appeal to a Governing Committee Review Panel
Following the adverse decision of the Market Review Committee, Shannon Insurance filed a timely request for further review by a CAR Governing Committee Review Panel. This panel is a sub-committee of the CAR Governing Committee that is charged with the “responsibility to review appeals made by…licensed producers aggrieved by any alleged unfair, unreasonable, or improper practice of CAR or a Member with respect to the operation of CAR.”
The review panel consists of three CAR Governing Committee members, and decisions of the Governing Committee Review Panel are those of the full Governing Committee.
The Governing Committee Review Panel hears the appeal de novo, without regard to the Market Review Committee’s decision. However, the documentary evidence and the presentations are almost always the same as the evidence before the Market Review Committee.
After hearing Shannon Insurance and Commerce, the review panel members were unanimous in finding that the Shannon Agency had violated each of the six CAR Rules that Commerce cited in its termination letter to the agency. See Agency Checklists’ article of April 30, 2019, Shannon Agency Appeals Commerce’s Contract Cancellation to The Division of Insurance.
Appeal to the Division of Insurance
On April 25, 2019, Shannon Insurance filed an appeal with the Division of Insurance of the CAR Governing Committee Review Panel, affirming the termination of the agency as an exclusive representative appointed to the Commerce.
Before the Division of Insurance, Shannon Insurance continued to defend itself without the benefit of legal counsel. Instead, the agency’s president, Paul Shannon, Jr., appeared as Shannon Insurance’s representative.
The proceedings before the Division hearing officer assigned to the appeal commenced on May 7, 2019. The hearing officer set a schedule for Shannon Insurance to submit by June 6, 2019, a detailed written statement with all the facts and events in a chronological order upon which it based its appeal along with any relevant documents. Commerce was allowed until June 27 to respond to Shannon’s statements.
At a July 11 prehearing conference, the hearing officer advised the parties that under CAR Rule 20, the appeal is based on a review of the prior proceedings at CAR and the party’s arguments in support or opposition to the CAR decision. Based on the agreement of the parties that the documents supplied by CAR were complete and correct, the hearing officer proceeded to request a memorandum from both the Shannon Agency and Commerce.
Mr. Shannon had until July 31 to submit the initial memorandum in opposition to the CAR decision, and both CAR and Commerce had until August 15 to respond.
July 31 came and went, but Shannon Insurance neither filed its required memorandum nor requested an extension to complete the memorandum.
CAR filed its response, noting that since Shannon had not complied with the requirement to submit a memorandum, that the matter should be decided on the original filings of the party of June 26 and the records of the underlying proceedings. Commerce restated its position that the hearing officer should uphold the termination on the merits, and since Shannon Insurance had failed to submit a memorandum as required by July 31, the appeal should be dismissed for “failure to prosecute.”
On August 15, Shannon Agency submitted a letter claiming that it was in response to the scheduling order of July 11, asserting that the CAR decision was invalid because “the number of insurance producers on the Governing Committee is less than the number authorized under the Plan of Operation.” The hearing officer ruled that Shannon Insurance’s August 15 submission due July 31 was “untimely” and offered “no legal support for [an] argument that CAR’s decision is invalid.”
The hearing officer reviews the evidence before CAR
The hearing officer reviewed the record before CAR that showed four new business applications for commercial insurance submitted by Shannon Insurance with policy effective dates of July 1, 3, 24, and August 15, 2018. In three of these cases, Commerce had not received any financing agreement and only received in one case a finance agreement three weeks after the policy’s effective date. Each of these omissions violated the CAR Rule.
The hearing officer also noted, as had CAR, that the applications were incomplete because they omitted information on declarations of nonrenewal, so there is from prior policies. Also, on three of the applications, the agency had not informed Commerce, as required that the applicant had been cancelled earlier in 2018 from nonpayment of insurance premium and that the agency had either collected payment from the applicant for earned premium but had not submitted it to commerce or failed to collect the deposit premium or make payment to Commerce.
The hearing officer acknowledged that the Shannon Agency claimed that the agency had lost business as a result of Commerce’s nonrenewal of commercial business and that the agency was claiming that Commerce was “systematically and deliberately” destroying that book of business. As to Shannon’s claim that other agents had written the business that Commerce had refused to write. The hearing officer noted that Commerce’s records submitted during the hearings before CAR showed that these other producers had been able to obtain the documentation, including fuel tax records, that Shannon Insurance had been unable or unwilling to obtain for Commerce.
In its presentation, Commerce focused on the warnings it had given the agencies and the rationale for all the underwriting requirements it had placed upon the agency.
Commerce explained that the more frequent reviews of renewals had occurred to determine if the information on record was still accurate and to comply with the new CAR standards for writing commercial business in the residual market. As a result, Commerce had imposed these standards of increased scrutiny requiring relevant underwriting information from Shannon Insurance long before the requested renewals date of these risks. Commerce’s position was that the agency had failed to comply and had the resulting loss of the business through non-renewals. Also, Commerce argued that an examination of the cancellations of the risks in question in my cases showed that the risk had been canceled for nonpayment rather than non-renewed.
The hearing officer finds commerce’s cancellation valid and supported by the evidence
The legal standard that the hearing officer applied to determine if Shannon Insurance had had a fair hearing before CAR was whether CAR’s decision was:
1) based on an error of law.
2) made upon unlawful procedure.
3) unsupported by substantial evidence.
4) unwarranted by facts found [by the Commissioner] on the record; or
5) arbitrary or capricious, an abuse of discretion or otherwise not in accordance with the law.
The hearing officer, based on the presentations of the documentary evidence of the hearings before CAR, including the transcripts, found that Commerce had acted properly and stated:
I conclude that CAR’s decision is in accord with applicable law, and the procedures for performing its obligations to oversee the residual market for motor vehicle insurance. I further find that the decision was supported by substantial evidence and that there is no basis on which to question or set aside the facts in the record on which CAR relied in reaching its decision. I find no evidence in the record that CAR’s decision was arbitrary, capricious, an abuse of discretion or otherwise not in accordance with the law.
“On this record, CAR’s decision upholding the termination of the Shannon Insurance Agency, LLC as an Exclusive Representative Producer for Commerce Insurance Company is affirmed. Shannon’s appeal is dismissed.”
Shannon Insurance can appeal to the Superior Court
Under M.G.L. c. 175, § 113H, the statute allowing CAR to operate, Shannon Insurance can appeal to the Suffolk Superior Court.
The Superior Court has 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 Shannon Insurance decision. However, like the agency’s appeal before the Division of Insurance, the Superior Court will only deal with the record of the proceedings before the Commissioner and the record of the CAR proceeding the Commissioner reviewed.
As of the publication of this article, November 19, 2019, the Suffolk Superior Court docket showed no appeal filed by Shannon Insurance of the Commissioner’s adverse decision.
