RECORDS OF MEETING
GOVERNING COMMITTEE REVIEW PANEL
A meeting of the Governing Committee Review Panel was held at the offices of Commonwealth Automobile Reinsurers, 100 Summer Street, Boston on
WEDNESDAY, SEPTEMBER 15, 1999AT 1:00 P.M.
MEMBERS OF THE PANEL
Members present -
Ms. Nanci S. Peters - Chairperson pro tem
George Peters Insurance Agency
Mr. Andrew J. CarpentierCNA Personal Insurance
Mr. J. Barry May*The Hanover Insurance Company
*Substituted for Mr. Richard W. Brewer
Commonwealth Automobile Reinsurers –
Mr. Joseph J. Maher, Jr.Vice President, General Counsel & Secretary
Records of Meeting-1-September 15, 1999
Governing Committee Review Panel
Mr. Timothy CostainMarket Relations Manager
Ms. Adrianne Francis Administrative Assistant
Also present –
Mr. Jeff WinikerA-Affordable Insurance Agency, Inc.
Mr. Mark Winiker
Mr. William Winiker
Mr. Robert SugliaAmica Mutual Insurance Company
Mr. Ronald Rainer
Timothy R. Loff, Esq.Law offices of Timothy R. Loff
Roberta Fitzpatrick, Esq.Mintz, Levin, Cohn, Ferris, Glovsky & Popeo
Mr. Raymond McCormack, IIIRaymond L. McCormack Ins. Agency, Inc.
Mr. Joseph CofieldMetropolitan P & C Insurance Company
Mr. Robert Harvey
Edward Donahue, Jr., Esq.Morrison, Mahoney & Miller
Mr. Thomas RogersNew England Fidelity Insurance Company
Governing Committee Review PanelChairperson pro tem Nanci Peters, called the meeting to order at 1:00 P. M.
GCRP
99.01RECORDS OF PREVIOUS MEETING
A motion was made by Mr. Carpentier and seconded by Mr. May to approve the records of the Governing Committee Review Panel Meetings of June 29, 1999 and July 20, 1999 as written.
The motion passed on a unanimous vote.
GCRP
99.09New England Fidelity Insurance Company/Raymond L. McCormack Insurance Agy., Inc.
The New England Fidelity Insurance Company requested a hearing to appeal the decision of the Market Review Committee which upheld the appeal of the Raymond L. McCormack Insurance Agency, Inc. and reinstated the agency’s Exclusive Representative Producer appointment. The company terminated the agency's appointment based on alleged violations of CAR Rules 13, B, 3, f, and 14, B, e, 1 f, “failure to remit payments on a timely basis in accordance with the provisions set forth in the contract between the Servicing Carrier and the Exclusive Representative Producer” and “failure to conduct all monetary transactions with the insured and Servicing Carrier as required by the Rules of Operation and the Exclusive Representative Producer contract.”
GCRP
99.09New England Fidelity Ins. Co. / Raymond L. McCormack Ins. Agy., Inc. (continued)
CAR Counsel Joseph Maher, advised that a request had been received prior to the meeting from Counsel representing the McCormack Agency, for a continuance of the matter due to a scheduling conflict. He noted that New England Fidelity, as the petitioning party, did not concur with the request for a continuance and desired to proceed with the matter. Mr. Maher indicated that the McCormack Agency and its attorney were advised, in light of New England Fidelity's position, that someone representing their interests should attend the meeting. He further advised that if the Panel chose to proceed with the matter in the absence of one of the parties, the possibility of the absent party claiming to be aggrieved by the process could arise and the matter could be remanded back to CAR for reconsideration.
A motion was made by Mr. May and seconded by Mr. Carpentier to continue the matter until the Panel's next meeting, but that a warning be issued that no further continuances would be granted.
The motion passed on a unanimous vote.
GCRP
99.10AMICA MUTUAL INSURANCE COMPANY/A-AFFORDABLE INS. AGY., INC.
The Amica Mutual Insurance Company, requested a hearing to review the decision of the Market Review Committee which directed the company to support the A-Affordable Insurance Agency’s newly acquired Revere office location. Amica had refused to support the office directly, claiming that the office acquisition was prohibited under the moratorium on ERPs establishing additional offices.
Attorney Timothy R. Loff, representing the A-Affordable Insurance Agency, stated for the record that he had not seen Attorney Roberta Fitzpatrick's September 14, 1999 submission to the Panel until just prior to the meeting. He indicated a willingness to proceed in the matter, but said that the late submission by opposing Counsel was unfair. Mr. Loff suggested that the late submission could serve as an example during consideration of a review of Rule 20, relative to the way in which evidence is presented.
Mr. Maher advised that Rule 20 of the CAR Rules of Operation is in the process of being revised and changes will include provisions governing timeframes within which written information may be submitted for consideration before a CAR Committee. He noted that consideration is being given to setting that deadline at not less than five days prior to a meeting. Mr. Maher continued that CAR is also developing and will be hosting several workshops for Committee Members, Servicing Carriers and other interested parties which will include an orientation to Rule changes currently being contemplated.
Ms. Fitzpatrick apologized for the late submission and explained that it was in response to Attorney Loff's submission dated September 10, 1999. She then provided a brief history of the case and explained that the book of business in question was originally part of the Shuman Insurance Agency, an ERP appointed to Trust Insurance Company. Following that agency's appointment termination for CAR Rule violations, all three of its office locations were sold to the Levenbaum Insurance Agency, an ERP
GCRP
99.10AMICA MUTUAL INSURANCE CO. / A-AFFORDABLE INS. AGY., INC. (continued)
with The Commerce Insurance Company. The Levenbaum Agency then sold the Revere book of business and office location, consisting of approximately 450 vehicles, to the A-Affordable Insurance Agency. According to Ms. Fitzpatrick, the purchase by A-Affordable does not represent the purchase of an agency, but rather the acquisition of a piece of an agency. She said that CAR Rule 14, A, 2, d, which provides for the sale of an ERP agency, does not apply in this case and therefore, acquisition of the Revere office by A-Affordable is not authorized by CAR. Ms. Fitzpatrick indicated that absent market need as defined by CAR, no authorization exists for ERP expansion into a non-market need community such as Revere. She continued that the expansion of A-Affordable into Revere does not serve CAR's purpose of providing insurance outlets for people who are otherwise unable to obtain insurance in the voluntary market and to prevent a disproportionate shift in a Servicing Carrier's residual market burden. Ms. Fitzpatrick also indicated that the Revere office is A-Affordable’s seventh expansion in a non-market need territory and Amica believes that the agency should service the Revere customers from their other offices. She suggested that the issue of ERP purchases be included in consideration of the broader issue of ERP expansion.
Mr. Loff said a clear distinction exists between the establishment of a new office and the acquisition through purchase of an existing office location and its book of business. He contended that the existence of an ERP agency with a sustained book of business presumes a market need, noting that neither the Market Need Criteria proposal recommended by the Ad Hoc Market Review Subcommittee, or the compromise proposal submitted by The Commerce Insurance Company, contained restrictions on purchases of agencies by ERPs. Mr. Loff concurred with testimony provided by MAIA during the deliberations on market need criteria, which indicated that the value of ERP agencies, many of which have lines of insurance business other than auto, could be diminished if restrictions were to be placed on producers ability to sell their agencies. He also said that Ms. Fitzpatrick's suggestion that A-Affordable service the Revere customers through its other offices doesn't make sense, adding that the agency sought guidance from CAR before proceeding with the purchase and should not be penalized for doing so. He noted that this is the only case involving an ERP purchase of this type which has been brought before CAR, and said that Ms. Fitzpatrick's contention that a lack of authority in CAR Rules regarding this purchase is tantamount to a prohibition of such, is a specious argument. Mr. Loff concluded that CAR has allowed ERP purchases in the past and the Market Review Committee Committee's vote that ERP sales and purchases not be included in the moratorium should stand without further Committee involvement.
Mr. Maher advised that Rule 14, A, 2, d, provides for the assumption of a selling ERP's market when the buyer has no market, adding that in this instance where the buyer has a market, the Rule as noted does not apply. Rather, he stated, if the purchaser has a market outlet for motor vehicle insurance, then the newly acquired book of business will flow to the purchaser's Servicing Carrier. This was the advice given to A-Affordable by CAR. He indicated that there are no CAR Rules restricting ERP purchases and confirmed that neither market need criteria proposal contained such restrictions.
GCRP
99.10AMICA MUTUAL INSURANCE CO. / A-AFFORDABLE INS. AGY., INC. (continued)
Mr. Carpentier indicated that the moratorium on ERPs establishing additional offices, as approved by the Governing Committee, focused on ERP expansion and attempts by Amica to expand the moratorium to an agency acquisition is incorrect. He noted that the business purchased by A-Affordable appears to be the entire book of business in Revere and is not part of a larger entity in that location. He also indicated that Amica's suggestion that the customers currently serviced by the Revere location seek service through A-Affordable's other offices represents an unacceptable compromise,
adding that restrictions of that kind cannot be placed on customers in the marketplace. Mr. Carpentier expressed concern about how to develop adequate controls relative to ERP expansion, and indicated a desire for CAR to settle on appropriate regulations which will allow ERPs the ability to grow within the defined statutory objectives which call for them to provide service to customers who otherwise cannot access the voluntary market.
Mr. Carpentier said the issue of Amica's residual market burden, which has been at the foundation of the company's complaint, also needs to be addressed. He noted that the broader issue of how to assure that Servicing Carriers receive an equitable burden of assessments and assignments has been an undercurrent to all of the related issues which Amica and CAR have been wrestling with during the last year and a half. He recommended that the group to be appointed by the Governing Committee Chairman to consider the issue of ERP expansion ought to consider whether in some instances, dual Servicing Carriers are appropriate. He said that consideration of this issue is necessary to address concerns over what to do with a large ERP such as A-Affordable, which arguably presents a disproportionate residual market burden for its Servicing Carrier.
Mr. May concurred with the comments made by Mr. Carpentier, adding that the question of what an appropriate rule might be relative to ERP expansion is a puzzling one, in the context of the potential burden that an aggressive and successful ERP could place on certain Servicing Carriers. He said however, that historically, the actions of the Market Review Committee, as well as the interpretation of CAR staff, is that an agency acquisition through sale is distinct from opening a new office.
A motion was made by Mr. Carpentier and seconded by Mr. May to deny the appeal and to recommend that the Governing Committee consider, in its deliberations on ERP expansion, the issue of secondary Servicing Carriers.
The motion passed on unanimous vote.
Mr. Maher advised the parties of their rights pursuant to CAR Rule 20.
There being no further business, a motion was made by Mr. Carpentier and duly seconded by Mr. May to adjourn the meeting.
The motion passed on a unanimous vote.
The meeting adjourned at 1:55 p.m.
TIMOTHY J. COSTAIN
Market Relations Manager
Boston, Massachusetts
October 4, 1999