SJC upholds rule in which auto insurers are not assigned high risk drivers for their first two years in the Commonwealth

In my last post I wrote about Arbella Mut. Ins. Co. v. Comm'r of Ins., 456 Mass. 66 (2010), in which the Supreme Judicial Court addressed the interplay between auto insurers that have recently entered the Massachusetts market and the Massachusetts Automobile Insurance Plan (MAIP), under which high-risk drivers obtain automobile insurance issued by private insurers.

The background to this case is changes to auto insurance regulations a couple of years ago which resulted in many new insurance carriers entering the Massachusetts market.

The court addressed a challenge by Arbella, a long-standing insurer in Massachusetts, to MAIP Rule 30.A. That rule delays the assignment of high-risk drivers to companies new to Massachusetts for two years after they enter the Massachusetts market.

Arbella first argued that Rule 30.A exceeded the statutory authority given to the insurance commissioner, which requires allocation to be "fair and equitable."

The court rejected Arbella's argument. It noted that newly writing companies do participate in MAIP from the time they enter Massachusetts by paying assessments for the operating expenses of MAIP. It discussed the fact that in the past new insurers were allocated fewer high-risk policies than established insurers.

The court also rejected Arbella's argument that Rule 30.A permits newly writing companies to poach less-risky policies from established insurers without worrying that their increased market share would result in a proportional increase in their assignment of high-risk drivers. The court stated that Arbella had not demonstrated that the formula unbalances competition any more than the former rules did. It noted that the Commissioner stated that insurers face start-up costs when entering the Massachusetts market, so that the two year delay was a fair and equitable formula.

Background on the Massachusetts Automobile Insurance Plan

In Arbella Mut. Ins. Co. v. Comm'r of Ins., the Supreme Judicial Court addressed several issues relating to the interplay between auto insurers that have recently entered the Massachusetts market and the Massachusetts Automobile Insurance Plan (MAIP), under which high-risk drivers obtain automobile insurance issued by private insurers.

This post will discuss the background of MAIP, and my next posts will discuss the substantive decisions made by the SJC about certain provisions of MAIP.

Mass. Gen. Laws ch. 175 § 113H requires the Commissioner of Insurance to create a system whereby auto insurers provide insurance to high-risk drivers (generally drivers who have received a lot of tickets or otherwise shown themselves likely to get into accidents). The Commissioner has a lot of leeway over exactly what the system will be.

MAIP is the current plan enacted by the Commissioner. Under it, insurers are assigned policies issued to high-risk drivers in proportion to each insurer's share of the voluntary market.

U.S. District Court discusses choice of law issues

Last week I posted about Stonewall Ins. Co. v. Travelers Cas. & Sur. Co., __ F. Supp.2d __, 2010 WL 6395 (D. Mass.), in which Judge Harrington applied the Texas law of equitable contribution.

I have said before that Massachusetts choice of law rules as they apply to insurance coverage disputes amount to so much gibberish. Choice of law issues are even less clear when the dispute is not between an insurer and an insured--who entered a contract with each other and, at least in theory, had reasonable expectations about which state's law should interpret the contract--but between insurers of the same insured, who have no contract with each other.

In Stonewall, a dispute between insurers over allocation of defense costs, Judge Harrington summed up the choice of law doctrine: "Determining which jurisdiction's laws should control is not a technical analysis according to Massachusetts' choice-of-law doctrine; instead, the court takes a broader view, and considers the interests and facts relevant to the particular matter before the court." Now I totally get how to determine what state's law to apply--don't you?

Judge Harrington held that Texas law applied for three reasons. "First, the claims arise from products manufactured by the Key Houston Company, a Texas-based division of Jacksonville Shipyards, Inc. Second, the majority of the claims for which S & S paid defense costs are from Texas. Third, most importantly, Texas law firms generated the overwhelming majority of the defense costs."

A foray into pop culture--and an explanation of negotiation

I recently saw Avatar, a movie about what happens when people are too caught up in their preconceptions to bother to negotiate.

In Avatar a marine goes to some far-away planet and infiltrates the indigenous people whose culture is the usual Hollywood image of the noble savage, more or less naked, unspoiled by consumer goods, happy to be in sync with nature and to ride their pet pteranodons. The evil earthlings have gone to the planet to exploit its natural resource, some weird rock. The biggest rock cache is under the giant tree where the Na'vi live and frolic.

Spoiler alert

The marine is accepted by the Na'vi and goes native. He tells the evil colonel and his evil capitalist boss that Earth has nothing the Na'vi want in exchange for leaving their tree. So the evil ones conclude that the only solution is to blow up the tree.

SLOW DOWN.

This is where the marine should go to his adopted people and say, "Guess what--the sky people want some rocks that are under the tree. Do you mind if they take them?"

The Na'vi might say, "Yes, we mind terribly and you'll have to blow up our tree to get our rocks." Then the movie would continue as if this interruption had never occurred.

Or, the Na'vi might say, "Rocks? Sure, we don't care, as long as you find an alternative to strip-mining. You know in that original ending to the movie, how you prayed to mother earth and she had all the animals help you kill a lot of people? Why don't you pray to her to have the rocks put in a neat pile instead?"

Or, they might say, "Yes but only if you give us plastic beads, wireless internet connection, a promise never to darken our treestep again, and/or veto power at the Security Council of the United Federation of Planets."

Parties negotiating over insurance often make the same mistake: They assume they know what the other side wants without bothering to ask. Typically, the insurer/adjuster/insurance defense attorney overlooks the fact that the claimant might be seeking something other than just money, or at least in addition to just money: maybe an apology from the tortfeasor, or an acknowledgement that their life has been diminished by the accident, or a show of respect. Claimants tend to overlook the fact that in the long run (and often, but not always, the short run) the insurance company cares most about money, in the form of keeping overall liability and defense costs down. Between the claimant and the insurer there is often a lot of unrealized common ground.

Blowing up the tree is not always necessary. Sometimes you just have to ask for what you want.

U.S. District Court orders equitable contribution under Texas law

In Stonewall Ins. Co. v. Travelers Cas. & Sur. Co., __ F. Supp.2d __, 2010 WL 6395 (D. Mass.) several insurers were on the risk for silicosis claims brought against Jacksonville Shipyards, Inc. The insurers attempted to coordinate a strategy for dividing the defense costs, but could not agree on how to reduce and allocate the costs. They all recognized, however, that the defense costs were exorbitant.

The impasse caused one of the insurers, S & S, to take control of the litigation on behalf of all of the insurers. The London Insurers refused to cooperate with S & S and disclaimed an responsibility for defense costs paid by S & S.

Judge Harrington of the United States District Court for the District of Massachusetts held that under Texas law the London Insurers were required to equitably contribute to the defense costs, which means that "where one insurance company paid in full for losses that are also covered by another insurance company, the paying insurance company can obtain contribution from the-nonpaying insurance company."

Judge Harrington held that the London Insurers must reimburse S & S 30 percent of teh defense costs. According to Judge Harrington, that figure was derived from tje percentage S & S stated in its answers to interrogatories that the London Insurers owed. (Presumably the answers to interrogatories contained back up figures for this assertion, although the opinion does not make that clear.)

Subscribe to this blog on your Kindle

The link is on the left column of the blog, about halfway down.

Happy reading.

State Farm cancelling homeowner's policies in Florida

According to this article on MSNBC, State Farm is canceling about half of its homeowner's policies in Florida because of expected hurricane losses.

You asked for it, you got it

Marie Cheung-Truslow, an attorney specializing in representing insurers in subrogation cases, asked if I could add an index to my blog. Yes I can, and I have. Scroll down on the left-hand column, and enjoy.

I haven't included case names in the index, but you can search for case names, or any other word or phrase, by entering it in the search box in the upper left corner.