According to its website, Mill City Insurance Inc.(“MCI”) began in 2003 as a small insurance agency located in Lowell. MCI focuses on automobile and renters insurance. Since its inception, MCI has expanded its locations with offices in Lawrence, Lynn, Everett, and Worcester. The agency also has an affiliated premium finance company for financing assigned risk auto premiums.
Twenty thousand flyers offering a rebate to announce the opening of a Worcester office
In the spring of 2019, MCI opened a new office at 218 Chandler Street, Worcester, with the marketing idea of having flyers printed up announcing the new MCI office and making a special offer of $75.00 to anyone if they took out a new insurance policy with MCI’s Worcester location.
To publicize its special offer, MCI contracted with a printing company for twenty thousand flyers. The flyers were printed and distributed on parked vehicles around Worcester. One of the flyers left on a motor vehicle in a parking lot on Southbridge Street in Worcester came to the attention of the Division of Insurance by way of complaint, most probably made by a competing Worcester insurance agency.
Division inquiry to MCI about the offer stops the program
After receiving the complaint about MCI’s financial offer to obtain new insurance policies, on June 26, 2019, the Division opened an investigation and questioned MCI about its potential rebating violations.
On July 5, 2019, MCI had to respond to questions from the Division regarding the flyers. It admitted that it had ordered twenty thousand flyers through a printing company and had the flyers with an offer of $75 to place policies with MCI’s new location distributed to Worcester residents.
In defense and mitigation of its rebating violation, MCI claimed to the Division that:
- The flyers “should have stated that the $75.00 was to be given to anyone referring a new client, not the client themselves.”
- Once the Division made its inquiry about the rebating, the advertising was discontinued.
- The program had only resulted in three new policies being issued with $924.00 in commissions.
After that, for almost two years nothing else happened to resolve the complaint to the Division about MCI’s rebating offer.
Division’s notice to MCI of rebating violations cites possible fines and license action
On May 21, 2021, Attorney Matthew M. Burke, counsel to the Commissioner, notified MCI that based upon an investigation conducted by the DOI’s Special Investigation Unit that the Division “has cause to believe that Mill City Insurance, Inc. has violated Massachusetts insurance laws set forth below by the conduct described herein.”
The conduct described in MCI’s notice reiterated the facts about MCI’s rebating offer and MCI’s answers to the Division about the alleged error in the flyers, MCI stopping the distribution of the flyers, and the minimal results of the rebate violation.
The legal violations and the possible statutory sanctions listed in the notice stated that “By distributing advertisement flyers offering $75 to anyone opening an insurance policy with MCI, MCI offered payment to induce an insurance contract which constitutes an unfair method of competition in the practice of insurance in violation of M.G.L. c. 176D, § 3(8).”
M.G.L. c. 176D is the unfair insurance practices act which gives the Commissioner broad regulatory powers over all persons engaged in the business of insurance in Massachusetts. This statute also allows the Commissioner to impose fines of $1,000 per violation of c. 176D. Section 3(8) of c. 176D specifically makes rebating illegal by prohibiting, except as otherwise expressly allowed by law, anyone in the business of insurance from rebating by:
“paying or allowing, or giving or offering to pay, allow, or give, directly or indirectly…any valuable consideration or inducement whatever not specified in the contract; or giving, or selling, or purchasing or offering to give, sell, or purchase as inducement to such insurance contract…anything of value whatsoever not specified in the contract.”
The Division’s notice advised MCI’s that its violation of the rebating prohibition could result, after a hearing, of imposition of fines of up to $1,000 for each violation under c. 176D, § 7. While unsaid in the Division’s notice, in other cases, the Division has taken positions that imply it could claim, in this case, that each flyer distributed constituted a separate violation if the matter went to a formal administrative hearing.
The Division makes MCI an offer it can’t refuse
After detailing all the laws that allowed the Division to seek substantial fines and license sanctions, the DOI then made MCI a reasonable settlement offer.
The Division proposed to resolve the matter by MCI agreeing to:
- waive its right to a public hearing
- cease and desist from any similar rebating conduct; and,
- pay a fine of $500.
The Division gave MCI until June 26, 2021, to accept its settlement offer by having “an authorized representative sign this letter where provided below and return it to my attention along with a check made payable to the Commonwealth of Massachusetts.
Eight days after the Division made its settlement offer, MCI wisely resolved the matter by signing the settlement offer and returning it to the Division with its check to pay the $500 fine.
In late July, the Division published the settlement as a public record.
Per the Division, MCI settlement with the Division was a reportable event
Although MCI settled this matter with no admission of liability or acknowledgment of any legal violation, the Division advised MCI that it considered the acceptance of this settlement agreement to constitute a reportable administrative event which must be included on MCI’s next Massachusetts business entity producer license renewal application.”
The failure to report administrative actions by licensees is a recurrent theme in Agency Checklists’ articles following insurance department hearing decisions revoking producer or agency licenses. In most cases, the revocations result from a nonresident producer licensee’s failure to have reported a settlement or administrative action that it had a duty to report to all the jurisdictions in which the person or agency held insurance licenses.
Settlements with insurance regulators are reportable by producers in all licensing jurisdiction
Almost all states have laws, similar to Massachusetts, based on the National Association of Insurance Commissioner’s Model Producer Licensing Act, which provides (in the Massachusetts version):
A producer shall report to the commissioner any administrative action taken against the producer in another jurisdiction or by another governmental agency in the commonwealth within 30 days of the final disposition of the matter. This report shall include a copy of the order, consent to order, or other relevant legal documents. G.L. c. 175, §162V(a).
Thus, any producer having any administrative proceedings involving any jurisdiction where they are licensed may have to report those proceedings to all jurisdictions where they are licensed within the statutory time allowed by each state’s laws. Usually, this period is thirty days based on the Model Act.
Any producer who has any formal dealings with any jurisdiction’s insurance regulators resulting in any type of agreement or written action should report them as a safety measure since the term “administrative action taken” that requires a report covers a broad range of proceedings since the statutes involved do not define the term.
