RECORDS OF MEETING

GOVERNING COMMITTEE

A meeting of the Governing Committee was held at the Wequassett Inn, Pleasant Bay, Chatham, Massachusetts on

FRIDAY, JUNE 16, 2000 AT 9:00 A.M.

Members present -

Mr. Richard W. Brewer – Chairman

Arbella Mutual Insurance Company

Ms. Nancy Z. Bender Nancy Z. Bender Insurance Agency, Inc.

Mr. Charles I. Boynton, III Boynton Insurance Agency, Inc.

Mr. Andrew J. Carpentier CNA Personal Insurance

Mr. Edward F. Downey, Jr. Edward F. Downey Insurance Agency

Mr. Sumner D. Gilman Economy Insurance Agency, Inc.

Mr. Robert W. Harvey Metropolitan Property & Casualty Ins. Co.

Mr. Keith Kijanka* MassWest Insurance Company, Inc.

Mr. J. Barry May The Hanover Insurance Company

Mr. James T. Masterson Liberty Mutual Group

Ms. Nanci S. Peters George Peters Insurance Agency, Inc.

Mr. Arthur J. Remillard, Jr. The Commerce Insurance Company

Ms. Kathleen Silvia** Provider Insurance Group, Inc.

Substituting for Mr. Thomas K. Randall*

Substituting for Mr. William F. Hofmann, III**

Commonwealth Automobile Reinsurers present -

Mr. Ralph A. Iannaco President

Mr. Michael J. Trovato Executive Vice President and Treasurer

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

Records of Meeting -7- June 16, 2000

Governing Committee

Commonwealth Automobile Reinsurers (continued) -

Mr. Paul Corsetti Director of Communications

Ms. Valerie Gedziun Vice President, Claims

Ms. Joyce Quinn Executive Assistant

Mr. Paul Ryan V.P. & Chief Information Officer

Ms. Kim Tobin Administrative Assistant

Also present –

Mr. Jeffrey Winniker A-Affordable Insurance Agency, Inc.

Mr. William Winniker

Mr. Ronald Rainer Amica Mutual Insurance Company

Mr. Robert Cordner CGU

Mr. David H. Cochrane The Commerce Insurance Company

Mr. Warren McLean The Concord Group

Ms. Teri Wegiel Economy Insurance Agency

Ms. Mary Ellen Thompson Massachusetts Division of Insurance

Mr. Joseph F. Cofield Metropolitan Property & Casualty Ins. Co.

Edward J. Donohue, Jr., Esq. Morrison, Mahoney & Miller

Mr. James Hayes Norfolk and Dedham Mutual Fire Ins. Co.

Mr. Barry Tagen Pilgrim Insurance Company

Ms. Paula Gold Plymouth Rock Assurance Corporation

Ms. Susan Scott The Premier Insurance Company

of Massachusetts

Peter T. Robertson, Esq. Law Offices of Peter T. Robertson

Mr. Edward Patrick Safety Insurance Company

Mr. William Commette Sentry Insurance Group

Governing Committee Chairman, Richard Brewer, called the meeting to order at 9:00 a.m. Chairman Brewer announced that Mr. Keith Kijanka of MassWest Insurance Company, Inc. would be substituting for Mr. Thomas Randall and that Ms. Kathleen Silvia would be substituting for Mr. William Hofmann. He also welcomed Ms. Mary Ellen Thompson from the Division of Insurance.

00.01 Records of Previous Meeting

A motion was made by Mr. Sumner Gilman and duly seconded by Mr. Edward Downey to approve the Records of the Governing Committee meeting of April 12, 2000 as written.

The motion passed unanimously.

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00.02 President’s Report

CAR President, Mr. Ralph Iannaco, reported that CAR has not yet obtained complete statistical data from Trust Insurance Company for the reporting month of December 1999 and the entire policy year 2000 due to system issues on the part of the company. CAR has been able, however, to develop reasonable estimates of premium exposures and losses that will be provided to the industry for informational purposes. Mr. Iannaco stated that Trust hoped to see all data reporting issues resolved by the end of the June quarter, with a reporting date of August 15, 2000.

Concluding his report, Mr. Iannaco stated that, as of this date, there are no Trust voluntary agents who are in need of an ERP appointment by CAR.

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00.03 Counsel’s Report

Mr. Joseph Maher reported that there is an appeal pending at the Division of Insurance regarding Settlement Disbursements relative to withdrawing carriers. Statements are to be filed by the parties on June 26, 2000 and a hearing is set on the merits of the appeal for June 28, 2000. The hearing officer determined that this matter was to be taken as a regulatory hearing rather than an ajudicatory hearing. CAR is engaged in a sharing of information that is expected to be completed by the first of next week. Any parties present at the hearing would be allowed to make oral presentations.

Mr. Maher reported that there was a hearing on the proposed amendments to Rule 13 concerning the requirement for member companies to be Servicing Carriers of CAR. The hearing was held at the request of Farm Family Insurance Company and American Insurance. Both parties objected to the changes proposed by the Governing Committee at their last meeting. The hearing record was left open for written submissions until June 23, 2000.

Mr. Maher reported that, pending at the Division of Insurance, is the hearing requested by Travelers Insurance Company relative to bulk adjustment issues including premium that Travelers withdrew regarding a matter involving Kellaway Transportation. The hearing officer, by agreement of the parties, suspended the hearing proceedings pending the outcome of the Commercial Lines Review Committee’s involvement in the matter.

That concluded Mr. Maher’s report.

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00.04 Market Review Committee

Mr. Charles Boynton reported that the Market Review Committee, at its meeting of May 2, 2000, previously heard testimony in the matter between the James R. Flanagan Insurance Agency, Inc. and the Arbella Mutual Insurance Company. The agency had requested a review of the termination of its ERP appointment by Arbella for alleged violations of the Brokers Agreement, which prohibits the unauthorized appointment of sub producers or acceptance of brokerage business. A report was provided by the parties indicating that they were attempting to negotiate a resolution to the matter and hoped to reach a final agreement before the Market Review Committee's next meeting.

Mr. Boynton reported that the Coleman & Igoe Insurance Agency requested a review of the termination of its ERP appointment by the Peoples Service Insurance Company for "failure to develop and maintain a minimum book of business". The agency is required to have 400 vehicles, and currently maintains a book of business of approximately 270 exposures. Based on agency growth during the past year and numerous steps taken to increase future productivity, the Market Review Committee voted to grant the agency an extension of one year to develop a book of business of 400 vehicles.

Mr. Boynton reported that the Ad Hoc Market Review Committee provided a report of that Committee's meeting of March 21, 2000. He summarized the Ad Hoc Market Review Committee's discussion, which centered on the fact that in many cases during the past two years, the Market Review Committee has seemed powerless to compel Servicing Carriers to act in a reasonable manner in the treatment of their ERPs. The Ad Hoc Committee agreed that it should focus on patterns of behavior in the treatment of ERPs and should not undermine existing Rules designed to protect company interests. The Ad Hoc Committee discussed immediate appointment terminations of ERPs as identified in Rule 13 and agreed that parts of Rule 13 - Servicing Carrier Requirements, may not be relevant in today's market. For the next meeting Staff was asked to compose a list of the types of incidents it has encountered and document new issues raised by ERPs for discussion at its next meeting.

Mr. Boynton reported that the Market Review Committee at its meeting of May 25, 2000, advised of negotiations between the James R. Flanagan Insurance Agency, Inc. and Arbella Mutual to resolve a dispute relative to alleged violations of Arbella’s Brokers Agreement, which provides that the, “producer shall have no authority to appoint sub-agents, or to accept business from any insurance broker, except upon written authority.” The Market Review Committee was informed that the parties had reached an agreement which will allow the agency/Servicing Carrier relationship to continue and voted to consider the matter closed.

Mr. Boynton reported that the Linton Blake Insurance Agency, Inc. requested a review of the declination, by Staff, of the agency's request for a hearing pursuant to CAR Rule 20. The Blake Agency's ERP appointment was terminated on January 20, 2000 by Liberty Mutual for “failure to maintain a valid broker’s license”. Mr. Blake requested a review of the termination in a letter dated March 22, 2000. The Committee voted with 12 in favor and Mr. Gilman not participating, to deny the agency's request for a review of Liberty Mutual's termination action, on the basis of the agency's noncompliance with the provisions of Rule 20.

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00.04 Market Review Committee (continued)

Mr. Boynton reported that the Boston Old Colony Insurance Company requested that the Market Review Committee rescind the ERP appointment of the John R. Haddad Insurance Agency. The company alleged that Mr. Haddad's withdrawal from his previous ERP appointment with Commonwealth Mutual and subsequent purchase of the Arias Insurance Agency, Inc., a Boston Old Colony ERP, was a scheme designed to circumvent CAR Rules and achieve a change of Servicing Carrier. The Committee voted with 8 in favor and 4 opposed to deny the company's request that the agency's ERP appointment to Boston Old Colony be rescinded.

Concluding his report, Mr. Boynton noted that the Records of the Market Review Committee meeting of May 2, 2000 have been distributed and are on file with CAR’s Secretary.

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00.05 Claims Advisory Committee

Ms. Valerie Gedziun reported that the Claims Advisory Committee, at its meeting of June 7, 2000, noted that the Automobile Damage Appraisers Licensing Board Subcommittee is preparing a final report on the safety of after market parts that will be voted upon at a hearing on June 14 and then forwarded to the Commissioner. The hearing was held; however, the report is not yet finalized.

Ms. Gedziun reported that the Performance Standards Subcommittee reviewed the proposed changes to the Standards, which were primarily to clarify existing language and not substantive in nature. One area in which they had not reached agreement was whether the Insurance Claim Payment Intercept Program (ICPIP) administered by the Department of Revenue should be included in the Standards. The CAR Claims Department is conducting the audits of the program on behalf of the Department of Revenue. Discussion centered around the issue that both the CAR Standards and the Department of Revenue’s regulation contained penalties for non-compliance. Members agreed that the ICPIP program should be part of the Standards but were concerned that in a case of non-compliance companies could be facing a double penalty. The Subcommittee made a motion to request CAR to draft language that would include the program in the Standards but reference that CAR penalties were secondary to those penalties imposed by the Department of Revenue. The motion passed unanimously. Ms. Gedziun noted that this was an action item for the Governing Committee.

After some discussion, it was noted there was no need for Governing Committee approval, as there was no change in language as of yet.

Concluding her report, Ms. Gedziun reported that the 13th Annual Cost Containment Seminar was held in May. Approximately 500 claims personnel attended. Representative Nancy Flavin, Chair of the House Committee on Insurance, was the key-note speaker.

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00.06 Operations Committee

Mr. Edward Patrick reporting on the Operations Committee meeting of May 24, 2000 noted that at their October 27, 1999 meeting, the Committee denied, without prejudice, Holyoke’s request for reimbursement of uncollected premium and legal expenses. Holyoke further appealed this decision to the January 25, 2000 Governing Committee Review Panel meeting; which voted to continue this matter for 90 days, as a court finding appeared imminent. USF&G and Metropolitan have since requested they be added to Holyoke’s original appeal and that the Operations Committee approve their proposed settlement (for all three companies) with First City Acceptance Corporation, and its principal, Anthony Visone, insofar as it affects CAR.

Mr. Patrick further noted that at the May 24, 2000 meeting, USF&G, Metropolitan, and Holyoke sought the Committee’s approval of a proposed settlement with First City Acceptance Corporation and its principal, Anthony Visone. This settlement includes approximately $230,000 in owed premium to Holyoke, approximately $220,000 in owed premium to Metropolitan, and about $450,000 in legal fees for all companies to date. Additionally, USF&G was requesting the Committee to rule that USF&G’s efforts at pursuing all outstanding and uncollectible premiums due from the insured were adequate and that CAR would not hold USF&G liable for any additional premium. The majority of the Committee felt uncomfortable on the basis of information presented, stating that USF&G had done enough in attempting to collect the money from the insured and would not be subject to any liability for additional premium. After further discussion, the consensus of the Committee was that the matter of the settlement was between the parties to the litigation, to which CAR is not, and thus is a business decision for the companies involved as to whether or not they should accept the settlement and not a matter for the Committee to recommend. The Committee denied this request with 11 in favor, 1 opposed, and 1 recused. Staff advised USF&G, Holyoke, and Metropolitan of its right to appeal the decision of the Operations Committee to the Governing Committee Review Panel within 30 days.

Mr. Patrick reported that the Committee discussed the impact of moving the VIN data comparisons into the statistical edits. The current program for comparing the various data elements to those encoded in the VIN indicates acceptable quality for private passenger business for model year, passive restraint discount, high-theft vehicle, and symbol. For commercial business the validity of age reporting is extremely good; however, there are some problems with passive restraint. The Committee was informed that as reported at the January meetings, these data comparisons will be moved into the statistical edits beginning January 1, 2001. The proposed changes to the Statistical Data Quality Program will modify penalty amounts due to the ineffectiveness of the program’s current penalties for those companies who have met the reporting threshold, but have failed to statistically report data to CAR. CAR proposed to move from a flat $10,000 penalty/year to a “sliding scale” structure. Under this structure, the fees will increase substantially each year that the company fails to meet its reporting obligations. The Committee unanimously approved the Subcommittee’s recommendation to adopt the proposed changes to the Statistical Data Quality Program concerning the increased monetary penalties, with the addition of the Division Notice of Non-Compliance to the Statistical Plan language. Mr. Patrick stated this was an action item for the Governing Committee.