On September 11, 2017, Arbella filed a formal request for reimbursement by CAR of its extraordinary expenses incurred by Arbella in the efforts it had to undertake to defend against the substantial litigation initiated by Point Insurance (“Point”) to block Arbella from using tools to fight against the pervasive fraud within that agency.
Also, Arbella requested a redistribution of the CAR commercial book of business resulting from it becoming materially undersubscribed as a servicing carrier because of the success it has had in reducing fraudulent risks in the Rapo & Jepsen book of business purchased by Point Insurance.
On September 18, 2017, the Commercial Lines Automobile The request was argued by Arbella’s Attorney Roberta Fitzpatrick and comprised a request for reimbursement of extraordinary expenses and a request for rebalancing CAR’s commercial business to achieve an equitable distribution of premium among the servicing carriers.
Committee hears request for extraordinary expenses while Point cancellation pending
On September 18, 2017, the Commercial Automobile Committee heard Arbella’s requests for expense reimbursement although the hearing on Point’s cancellation of its contract by Arbella has been continued for Point to obtain new counsel. See Agency Checklists’ article of September 19, 2017, “Agency Termination Hearing Canceled because of Lawyer’s Conflict Of Interest.”.
Attorney Roberta Fitzpatrick of Arbella presented Arbella’s request for $$585,934, has requested from CAR almost $583,000.00 in extraordinary expenses for the proceedings, investigation, litigation and hearings resulting from the appointment of Point Insurance to Arbella.
The breakdown presented by Attorney Fitzpatrick showed Arbella was requesting:
- $62,843.00 in fees relating to the defense of lawsuits, appeals and motions filed by the Point Insurance Agency with the Division of Insurance and Massachusetts Superior Court against Arbella;
- $162,273.00 representing salary expenses relating to those claims, underwriting and operation staff; and
- $360,818.00 representing loss savings associated with SIU efforts Arbella would have realized had it not focused these extraordinary resources on the Point Agency.
Attorney Fitzpatrick related to the Committee the history of the Rapo & Jepsen termination and the appointment of Point by CAR to Arbella. The Point Agency was created by a Rapo & Jepsen employee following the notice of termination sent to Rapo & Jepsen by Arbella. When CAR upheld the termination of Rapo & Jepsen by Arbella, Point purchased the Rapo book of business and serviced it with virtually all Rapo & Jepsen’s former employees.
Attorney Fitzpatrick clarified for the Committee that the reimbursement Arbella sought only involved expenses relating to actions after CAR assigned Point assigned to Arbella after Arbella successfully canceled the Rapo & Jepsen Agency for its pervasive insurance fraud. The unique situation here, per Attorney Fitzpatrick, was that the agency was assigned back to Arbella after being sold to a former employee of the canceled agency with the agency retaining its workforce.
Attorney Fitzpatrick noted that under normal circumstances the successor organization would cease fraudulent activity or work with the company as it reviewed renewals to purge fraudulent policies Here instead the agency perpetuated the fraudulent activity not only but obstructed Arbella’s efforts to remove the fraud in the purchased book.
Attorney Fitzpatrick’s efforts on behalf of Arbella were backed up by exhibits that reflected the work required and the extraordinary hours committed to the ongoing and expensive fraud within the Point Agency.
Also, on the request for reimbursement for what amounted to lost SIU opportunity costs, the Committee heard from Mr. Edward Spellman, the SIU investigator for Arbella. Mr. Spellman provided the Committee with information regarding the substantial work that Arbella did to eliminate the fraud in Point’s book of business. According to Mr. Spellman, the Arbella’s investigation of Point was not within the scope of ordinary SIU investigation. He noted that SIU resources had to be devoted on a full-time basis diverting the SIU resource away from the company’s regular SIU investigations. Because of these investigations, SIU also had to enlist the involvement of underwriting and claims personnel.
Committee votes to recommend to Governing Committee Arbella receive some reimbursement
Upon a vote of seven in favor and two opposed with one recused the Committee voted to recommend that Arbella be reimbursed by vote of the governing committing of an amount up to $585,934.00 the amount initially requested by Arbella. The Committee made no specific recommendation as to the reimbursement amount as it had doubts on whether the lost SIU savings were reimbursable but the Committee supported Arbella’s request for reimbursement of legal fees and salary expenses.
Committee recommends against rebalancing servicing carrier distribution
Arbella’s argument for rebalancing was that because of the termination of Rapo & Jepsen and the ongoing non‑renewal process of Point’s business, Arbella’s share of the commercial residual market has dramatically decreased and will continue to decrease at the trending rate.
Attorney Fitzpatrick presented a chart showing that the written premium for the Rapo & Jepsen and Point Agency fell by 52 percent between June 2016 and June 2017, causing Arbella’s proportionate share of commercial ceded business to decrease materially. Arbella requested the rebalancing of servicing carrier books to avoid an unfair subscription level because it successfully fought agency fraud.
Ms. Fitzpatrick reviewed an exhibit with the Committee that illustrated the distribution of the ceded written premium for policy year 2017 through June, noting that Arbella is undersubscribed following the termination of the Rapo and Jepsen Insurance Agency and the nonrenewal of fraudulent Point risks.
As reflected in the exhibit, Arbella predicted it would be undersubscribed by approximately $17 million by the close of the year. So Arbella requested, if a review by CAR later this year indicates this trend has continued, a redistribution be performed effective January 1, 2018, rather than waiting until the 12 months of reported data is available, as stipulated in Rule 13.C. Given the level of Arbella’s undersubscription, Ms. Fitzpatrick asserted that redistribution is appropriate and should not wait until the second quarter of 2018, when calendar year 2017 data is complete.
The Committee members observed that the provisions of Rule 13.C. were put in place to avoid the disruption which had been evident in the marketplace because of the redistribution required with the withdrawal of Travelers from the Commercial Automobile Program. Further, the members noted that the action requested by Arbella would be premature given the potential for shifts in books of business that typically occurs with such an extensive redistribution.
After discussion, the Committee voted unanimously with two recusals to recommend to the Governing Committee to deny Arbella’s redistribution request.
Governing Committee remands expense reimbursement and takes no action on redistribution
The recommendations by the Commercial Automobile Committee were, in the case of Arbella’s request for extraordinary expense reimbursement tabled until the November meeting to the Governing Committee. On the recommendation of the same Committee to deny Arbella’s request for an accelerated redistribution, the Governing Committee heard the report of the Commercial Automobile Committee but took no action.
The Governing Committee took no direct action on the report from the Commercial Lines Committee but instead requested staff to review the request for extraordinary expenses relating to the documentation of the lost opportunity costs and SIU expenses as well as for that Committee to consider potential guidelines and standards for reimbursement of such extraordinary expense reimbursement requests by a possible rule change.
The Commercial Automobile Committee has no specific date to report but is expected to have preliminary comments for the November Governing Committee.
On the redistribution request, the position of the Governing Committee in taking no action on the report of the Commercial Automobile Committee amount to the affirmation of that decision and, therefore Arbella’s remedy would be to appeal to a Governing Committee Review Panel.
