On Thursday, October 18, 2017, the Market Review Committee of Commonwealth Automobile Reinsurers (“CAR”) will hear an appeal by the TRU Insurance Agency (“TRU”) of Ashland, for relief from the cancellation by the Commerce Insurance Company (“Commerce”) of their exclusive representative limited servicing carrier agreement for commercial auto insurance.
Commerce’s backs up cancellation notice with 400 plus pages of documentation
On August 15, 2017, Commerce issued TRU a notice of cancellation comprising a three-page letter with 446 pages of backup documentation. The backup material was broken up into six separate attachment evidencing, in Commerce’s opinion, multiple specific violations of this CAR Rules of Operation:
- Rule 14.B.1.d. Submit for all applicants a new business application for insurance, completed in its entirety, and a signed premium finance application/agreement, if applicable within two business days. (Attachment A).
- Rule 14.B.1.e. Provide a reasonable and good faith effort to verify the information provided by the applicant, including rating and licensing data. (Attachment B).
- Rule 14.B.1.f. Report all coverage bound and all registrations certified to the Servicing Carrier within two business days after binding coverage or certifying a registration. (Attachment C).
- Rule 14.B.1.q. Verify that the applicant has not been in default in the payment of any Motor Vehicle Insurance premiums in the past 24 months. (Attachment D).
- Agreement Section 1.b. Producer shall submit to Servicing Carrier within two (2) business days of the effective date of coverage a complete report of each application; binder, policy, endorsement, or certificate executed. (Attachment E).
- Agreement Section 1.h. Producer shall exercise due care and diligence in submitting information to Servicing Carrier, and warrants that, to the best of his or her knowledge, the information shall be accurate and complete. (Attachment F).
The six attachments had these specific violations alleged by Commerce:
- Attachment A: Three commercial risks submitted to Commerce by TRU with the premiums paid by a premium finance company where Commerce never received the premium finance agreements as required by CAR Rule 14.B.1.d.
- Attachment B: Nine commercial risks where TRU failed to make a reasonably good faith effort to verify driver information (three risks), failed to provide a completed application (four risks), and failed to validate garage location as requested (two risks) as required by Rule 14.B.1.e.
- Attachment C: Four commercial risks where TRU bound coverage but, instead of reporting to Commerce as required by CAR Rule 14.B.1.f. The coverage bound within two business days, the agency reported the business, 16 days, 23 days, 48 days, and 82 days later respectively.
- Attachment D: Five commercial risks where TRU did not verify, in violation of CAR Rule 14.B.1.q. according to Commerce, the applicant had not been in default of in the payment of any motor vehicle insurance premiums in the past 24 months. Each risk submitted had answered “no” regarding policy cancellations when they all had been so cancelled.
- Attachment E: The Commerce limited servicing carrier agreement with TRU providing TRU would report all business bound within two business days as per Section 1.b. of the agreement.
- Attachment F: Commerce’s June 2, 2017 notice of intent to cancel the limited servicing carrier agreement with TRU based on 24 risks where Commerce did not receive the finance agreement within two days as required by CAR Rules and five risks where TRU never submitted the premium finance agreement.
TRU submits response admitting issues but pointing out mitigating factors.
In its 20-page response, TRU Insurance put forth its case arguing it had taken steps to rectify the situations described in Commerce’s cancellation notice. TRU also claimed that part of its problem had been caused by Commerce’s failure to adequately assist the agency when it was reassigned from Safety Insurance in December 2016. Finally, TRU acknowledge that it had had internal personnel problems and difficulty in handling a now‑gone producer’s book of business which had produced all but one of the problem accounts identified by Commerce.
TRU Insurance argue in response to Commerce’s allegations that:
- On Commerce’s first basis for termination claiming that TRU violated CAR Rule 14.B.1.d three times, by failing to provide Commerce within 48 hours copies of premium finance agreements, TRU had had completed, executed, and submitted premium finance agreements to the finance company and payment had issued from the finance company to Commerce.
- As Commerce’s second basis for termination claiming that TRU violated CAR Rule 14.B.1.e and the limited servicing agreement by failing to make a reasonable and good faith effort to verify information in the policy applications, TRU argued these were innocent mistakes and provided explanations including pointing out that one error was corrected within two hours. Finally, TRU noted that these policies were part of the book of the producer who had now left the agency with her expirations.
- On Commerce’s third basis for termination that TRU by failing to report all coverage bound within two business days, TRU argues that none of Commerce’s allegations “implicate any fraudulent conduct by TRU” but involved either misunderstandings by Commerce or management issues that TRU was having in staffing.
- On Commerce’s fourth basis for termination the five risks with misrepresentations in their applications on prior cancellations, TRU claims that four of these applications involved errors by an administrative person who has since been “demoted.” The fifth policy application, according to TRU, had been erroneously prepared by this administrative person with an incorrect answer on cancellations but the insured had corrected it and TRU had sent this to Commerce.
TRU did not individually address the additional two attachments to Commerce’s notice of cancellation, probably because they were encompassed in the first four grounds alleged in the notice.
TRU argues for committee to vote for probation over cancellation
in the final section of its submission, TRU argues that “It would be unfair or unreasonable to uphold the termination [by Commerce] because:”
- TRU did not commit any fraudulent or intentional misconduct;
- [TRU] has since taken remedial action to prevent these types of mistakes from happening again;
- the errors committed by TRU were not the result of fraud or any scheme designed circumvent CAR Rules:
- all of TRU’s mistakes were innocent in nature and resulted from a confluence of unavoidable circumstances causing extreme administrative burdens on TRU’s small staff.
The burdens on it small staff that TRU alleges occurred included CAR switching TRU’s servicing carrier from Safety to Commerce and the simultaneous loss of TRU’s two most senior employees during that transition process. Also, since TRU learned about the errors made by its staff, the producer whose book had produced all but one of the problems had taken her book of business elsewhere and the remaining volume of TRU’s roll-over work and new business is dramatically less and with new procedures implemented and the volume of business substantially reduced, TRU, , according to TRU, “is able to process all of its business in a timely, methodical and correct manner.”
Finally, TRU notes CAR’s Manual of Administrative Procedures provides that the Market Review Committee may defer a finding and establish a probationary period for TRU to demonstrate that it is no longer committing the same errors identified in the Notice of Termination and asks for the “second chance” allowed by CAR.
Agency checklist will update its readers.
Agency checklist will monitor the hearing at the Market Review Committee and report in its next issue on the results of TRU’s hearing before the Market Review Committee.
