1999.03.10 - Records of Meeting

Records of Meeting-1-March 10, 1999

Market Review Committee

RECORDS OF MEETING

MARKET REVIEW COMMITTEE

A meeting of the Market Review Committee was held at the offices of Commonwealth Automobile Reinsurers, 100 Summer Street, Boston on

WEDNESDAY, MARCH 10, 1999 AT 10:00 A.M.

Members present -

Mr. Charles I. Boynton – Chairman

Boynton Insurance Agency, Inc.

Mr. David H. CochraneCommerce Insurance Company

Mr. Daniel F. CrimminsSafety Insurance Company

Mr. James D. DohertyDoherty Insurance Agency, Inc.

Mr. Francis D. GibbonsO’Brien & Gibbons Insurance Agency, Inc.

Mr. Sumner D. GilmanEconomy Insurance Agency, Inc.

Ms. Paula W. GoldPlymouth Rock Assurance Corporation

Mr. Josiah Hatch*H. R. Hatch Insurance Agency

Mr. William F. Hofmann, IIIProvider Insurance Group, Inc.

Mr. Wayne D. HowardHanover Insurance Company

Mr. Douglas LongBerkshire Mutual Insurance Company

Mr. Kevin H. Meskell**Quincy Mutual Fire Insurance Company

Ms. Susan ScottThe Premier Insurance Company of Mass.

Mr. Mark R. SilvaBenson, Young & Downs Ins. Agency, Inc.

Mr. Louis M. XifarasLouis M. Xifaras Insurance Agency, Inc.

*Substituted for Ms. Nancy Z. Bender

**Substituted for Mr. William J. Whitebone

Commonwealth Automobile Reinsurers -

Mr. Ralph A. IannacoPresident

Mr. Joseph Maher, Jr.Vice President & General Counsel

Records of Meeting-1-March 10, 1999

Market Review Committee

Mr. Paul CorsettiDirector of Communications

Mr. Timothy CostainR. P./S. C. Coordinator

Ms. Cynthia DuffyStatistical Analyst

Ms. Adrianne FrancisAdministrative Assistant

Mr. John MetcalfeAdministrative Manager

Mr. Michael TrovatoExecutive Vice President & Treasurer

Mr. Frank UnderhillVice President of Auditing

Ms. Jennifer VieraStatistical Analyst

Also present –

Ms. Cleo AndersonAmica Mutual Insurance Company

Ms. Susan McCannArbella Mutual Insurance Company

Mr. Edward ColemanColeman & Igoe Insurance Agency

Ms. Joyce SmithCommonwealth Mutual Insurance Company

Ms. Susan Scanlan

Mr. Anthony CarnevaleConvenient Affordable Insurance Agency, Inc.

Mr. James Fiore

Michael J. Coyne, Esq.Michael J. Coyne Attorney at Law

Ms. Joyce DohertyDoherty Insurance Agency, Inc.

Ms. Candace ScottErnest Scott Insurance Agency

Ms. Joanne BordenFireman’s Fund Insurance Company

Robert Mahoney, Esq.Hale & Dorr

Ms. Erin SchaafHorace Mann Insurance Company

Steven W. Kasten, Esq.McDermott, Will & Emery

Ms. Jewel CurtinNorfolk & Dedham Group

Ms. Marietta PaquetteMarietta M. Paquette Insurance Agency, Inc.

Mr. John ForbesPeoples Service Insurance Company

Mr. Leonard RollinsPilgrim Insurance Company

Ms. Diane FortinoThe Premier Insurance Co. of Mass.

Martin ReillyReilly Associates

James T. Scamby, Esq.Roche, Heifetz, Murphy & Wholley

John Curran, Esq.Smith & Brink P. C.

Lynn McCarthy, Esq.

Mr. Michael CranneyTrust Insurance Company

Market Review Committee Chairman Boynton, called the meeting to order at 10:00 A.M.

99.01 Records of Previous Meeting

The Records of the Market Review Committee meeting February 23, 1999 were not available and should be considered for approval at the Committee’s next meeting.

99.05STANLEY SHUMAN INSURANCE AGENCY, INC./TRUST INSURANCE COMPANY

Stanley Shuman, in a letter dated December 9, 1998, requested a hearing to appeal for a change in Servicing Carrier from the Trust Insurance Company. At its December 22, 1998 meeting the Market Review Committeevoted to continue the matter for thirty (30) days and directed CAR Staff to gather facts relating to the petition and to seek resolution, among the parties involved, to the issues raised within the context of the request for reassignment. At its January 21, 1999 meeting CAR Staff provided the Committee with an update on the matter noting that meetings had occurred between CAR Staff and Trust as well as between CAR Staff and the Shuman Agency. At its February 23, 1999 meeting Staff reported that efforts to mitigate the issues were linked to the resolution of the matters involving premium financing. Staff reported

that the Committee would continue to be provided with updates on the matter as it evolved.

Mr. Gilman refrained from participating in the matter, noting for the record, that he has a business relationship with Trust Insurance Company and the Shuman Insurance Agency, Inc. through his premium finance company.

CAR Counsel Joseph Maher, advised that on March 9, 1999, the Governing Committee Review Panel voted to uphold Trust's termination of the Exclusive Representative Producer appointment of the Stanley Shuman Insurance Agency, Inc. and consequently, the Agency's petition for a change of Servicing Carrier had become moot.

99.05STANLEY SHUMAN INSURANCE AGY, INC./TRUST INSURANCE CO. (continued)

Attorney James Scamby representing the Shuman Insurance Agency, noted for the record the appellant's desire to reserve his rights to seek a change of Servicing Carrier in the future, should circumstances provide for the opportunity.

A motion was made by Mr. Xifaras and seconded by Mr. Silva to remove the matter from the agenda without prejudice toward either party.

The motion passed on a unanimous vote.

99.07STANLEY SHUMAN INSURANCE AGENCY, INC./TRUST INSURANCE COMPANY

Stanley Shuman, in a letter dated December 7, 1998, requested a hearing to appeal alleged actions of the Trust Insurance Company including; “Failure of Trust Insurance to honor agency billed policies as provided for under M.G.L. 175, Section 162 C,” and “Failure to honor premium financing contract, as prescribed by M.G.L 255 C, and their insistence that a hold harmless agreement be consented to.” At the December 22, 1998 meeting of the Market Review Committee, Richard Wholley, attorney for the Shuman agency, requested that this matter be continued pending the outcome of the agency’s request for a change in Servicing Carrier. At its January 21, 1999 meeting, the Market Review Committee voted to direct the parties to submit briefs within 20 days as to the law and applicable Rule regarding a Servicing Carrier’s premium financing obligations to its agents and ERP’s. Each party would then respond to the other’s brief within seven days. CAR Counsel would then construct a summary analysis for the Committee’s consideration at its next meeting. At its February 23, 1999 meeting the Committee voted to continue the matter to March 3, 1999 in an effort to provide time for review of additional briefs submitted on the matter on behalf of premium finance companies. The Governing Committee, at a special meeting on March 9, 1999, voted to direct CAR Staff to draft a Rule which requires Servicing Carriers to comply with the terms and conditions of premium finance notes and/or agreements submitted to the Servicing Carrier, on behalf of applicants for insurance, by the producer or by a premium finance company licensed under thwe laws of the Commonwealth of Massachusetts.

A motion was made by Mr. Xifaras and seconded by Mr. Doherty to remove the matter from the agenda without prejudice toward either party, for the same reasons outlined in docket number MR99.05 in the termination of the Shuman Agency's Exclusive Representative Producer appointment to Trust.

The motion passed on a unanimous vote.

99.08GENE DVORKIN INSURANCE AGENCY, INC./TRUST INSURANCE COMPANY

The Gene Dvorkin Insurance Agency, Inc., requested a hearing to petition for a change in the agency’s private passenger Servicing Carrier from the Trust Insurance Company. At its December 22, 1998 meeting the Market Review Committeevoted to continue the matter for thirty (30) days and directed CAR Staff to gather facts relating to the petition and to seek resolution, among the parties involved, to the issues raised within the context of the request for reassignment. At its January 21, 1999 meeting CAR Staff informed the Committee that meetings had occurred between CAR Staff and Trust as well as between CAR Staff and the Dvorkin Agency. At its February 23, 1999 meeting Staff reported that efforts to mitigate the issues were linked to the resolution of the matters involving premium financing. Staff reported that the Committee would continue to be provided with updates on the matter as it evolved.

Mr. Gilman refrained from participating in the matter, noting for the record, that he has a business relationship with Trust Insurance Company through his premium finance company.

Mr. Maher advised that Staff's efforts to seek resolution of issues of dispute related to this matter, as well as those related to docket number MR99.09 were ongoing. He noted that a scheduling conflict had resulted in a delay of meetings between Trust and the petitioning agencies, adding that those meetings had been rescheduled for the next week. He suggested that both matters be continued to provide an opportunity for Staff to continue its resolution efforts. Mr. Maher noted that the issues of dispute related to the petitions for a change of Servicing Carrier are distinct from the issue of premium finance.

The Committee and both parties to docket numbers MR99.08 and MR99.09 agreed to continue the matters until the Committee's next meeting.

99.09PAQUETTE INSURANCE AGENCY, INC./TRUST INSURANCE COMPANY

The Marietta M. Paquette Insurance Agency, Inc., requested a hearing to petition for a change in the agency’s private passenger Servicing Carrier from the Trust Insurance Company. At its December 22, 1998 meeting the Market Review Committeevoted to continue the matter for thirty (30) days and directed CAR Staff to gather facts relating to the petition and to seek resolution, among the parties involved, to the issues raised within the context of the request for reassignment. At its January 21, 1999 meeting CAR Staff provided the Committee with an update on the matter noting that meetings had occurred between CAR Staff and Trust as well as between CAR Staff and the Paquette Agency. At its February 23, 1999 meeting Staff reported that efforts to mitigate the issues were linked to the resolution of the matters involving premium financing. Staff reported that the Committee would continue to be provided with updates on the matter as it evolved.

Mr. Gilman refrained from participating in the matter, noting for the record, that he has a business relationship with Trust Insurance Company and the Paquette Insurance Agency, Inc. through his premium finance company.

This item was considered together with item MR99.08 (see item MR99.08)

99.11AD HOC MARKET REVIEW SUBCOMMITTEE

The Market Review Committee, at its May 13, 1998 meeting, voted to have the Chairman establish a subcommittee which would examine the application of CAR Rules, and specifically, Rule 14 to ERP’s operating from multiple locations, with particular focus on the relationship of market need criteria to these multiple locations.

Subcommittee Chairman Charles Boynton reported that final proposals were being prepared and a meeting would be scheduled for early April with hopes of a recommendation for the Market Review Committee shortly thereafter.

99.12AUDIT OF TRUST INSURANCE COMPANY, THEIR ERPs AND OTHER ASSIGNED AGENTS

CAR Staff reported on the audit of the Trust Insurance Company, their ERPs and other agents assigned to Trust, as directed by the Market Review Committee at its September 3, 1998 meeting.

Mr. Maher advised that CAR Staff has endeavored to resolve disputes between Trust and its ERPs with the hope that resolution will eliminate the need for an audit of Trust and its producers.

99.13ERNEST SCOTT INSURANCE AGENCY / TRUST INSURANCE COMPANY

The Ernest Scott Insurance Agency requested a hearing to appeal the action of the Trust Insurance Company in rejecting financed premium payments submitted by the agency with new business applications. At its January 21, 1999 meeting, the Market Review Committee voted to direct the parties to submit briefs within 20 days as to the law and applicable Rule regarding a Servicing Carrier’s premium financing obligations to its agents and ERP’s. Each party would then respond to the other’s brief within seven days. CAR Counsel would then provide a summary analysis for the Committee’s consideration at its next meeting. At its February 23, 1999 meeting the Committee voted to continue the matter to provide Counsel time for review of additional briefs submitted on the matter on behalf of premium finance companies.

Mr. Gilman refrained from participating in the matter, noting for the record, that he has a business relationship with Trust Insurance Company and the Ernest Scott Insurance Agency through his premium finance company.

Mr. Howard refrained himself from participation in the matter, noting that AMGRO, Inc. which intended to present testimony, is part of the Allmerica Financial Group, as is the Hanover Insurance Company.

99.13ERNEST SCOTT INSURANCE AGENCY / TRUST INSURANCE COMPANY(continued)

CAR Counsel Robert Mahoney, provided a summary of the parties positions advanced in their respective briefs. He noted that there is nothing specific in statute or CAR Rules to obligate or negate the ability of an ERP to utilize premium finance. Mr. Mahoney indicated that Trust argues that in accordance with the provisions of MGL Ch. 175, sec. 113H, the company has no obligation to write risks which have been cancelled for non-payment within the preceding twelve months, but if they choose to write such risks, the company can set the terms on which the risk is written, specifically, requiring 100% down payment and denying premium finance. Mr. Mahoney said there is nothing in CAR Rule 15 that restricts the source of down payments. He said that contrary to Trust's argument, the ERP’s maintain that the company is misreading Ch. 175, sec. 113H. According to Mr. Mahoney, the producers interpret sec. 113H to mean that if a premium default within the last twelve months has been cured, the company is obligated to write the risk. He said the producers also contend that Ch.175, sec. 162B, authorizes agents and brokers to accept premium in installment payments and thereby entitles them to facilitate premium finance. Trust counters that Ch. 175, sec. 162B, does not require a Servicing Carrier to permit premium finance and also maintains that Ch. 175 sec. 113I says that nothing in Ch. 175 abridges the freedom of contract. Mr. Mahoney further advised that Trust's brief cites Illinois case law which concludes that an insurer is not required to permit premium finance, adding that the amicus brief submitted on behalf of Thrifty Finance cites Massachusetts case law which provides that a note received by an agent or broker on an account of insurance premium constitutes payment and is the property of the company and the sale of such a note is part of the process of selling insurance.

With respect to analysis of the contract between Trust and the Scott Agency, Mr. Mahoney indicated that Trust argues that there is a specific prohibition against premium finance due to the fact that all premiums are to be direct billed. He indicated that one could argue that if the offer to direct bill, which is the premise for not allowing premium financing, is absent, then so is the restriction against premium finance. He added that other portions of the contract are consistent with this type of approach and said that based on his reading of the contractual provisions, the ban on premium financing is not effective. Mr. Mahoney continued that Trust also points to a contractual provision which provides that no rights or obligations under the agreement maybe assigned by the producer without the consent of CAR or the Servicing Carrier. He advised that the provision in question does not eliminate the producer's right and responsibility to collect the premium and forward it to the company. He concluded that the Scott agency contract with Trust, does not prohibit the producer’s ability to premium finance insured policy payments.

Attorney Steven Kasten representing Trust, cited the March 9, 1999, Governing Committee decision, which directed CAR Staff to draft a proposed amendment to CAR Rules requiring Servicing Carriers to accept premium finance agreements. In light of that decision, he questioned whether the Market Review Committee should act on the premium finance issue prior to the adoption of a proposed Rule amendment which should more clearly address the issues on premium financing. He also questioned whether CAR has the authority to force Servicing Carriers to accept premium financing and requested that the matter be held in abeyance pending resolution of the proposed Rule amendment.

99.13ERNEST SCOTT INSURANCE AGENCY / TRUST INSURANCE COMPANY (continued)

Mr. Kasten defended the actions of Trust, noting that the company did send cancellation notices to the insureds whose premium finance agreements had been rejected, in question, thereby providing them an additional 20 days to secure the 100% down payment from an alternative source. Mr. Kasten reinforced that Trust is a direct bill company and Ms. Scott is violating her contract by writing policies that have been cancelled within the previous twelve months and issuing premium finance notes. He noted that Trust attempted to accommodate premium finance through hold harmless agreements, but that approach didn't work. He added that 50% of premium financed policies cancel for non-payment and said it was unfair to attempt to force a totally direct bill company to accept premium finance. Mr.Kasten continued that the creation of a Rule, applicable to all Servicing Carriers, would represent a more equitable approach to the issue of premium finance and would provide an opportunity for debate and ultimately for a ruling by the Commissioner of Insurance and the courts, if necessary.