SJC rejects auto insurer's argument that different MAIP rules for large insurers than small insurers should be thrown out

I have been discussing Arbella Mut. Ins. Co. v. Comm'r of Ins., 456 Mass. 66 (2010), in which the Supreme Judicial Court addressed several issues relating to the Massachusetts Automobile Insurance Plan (MAIP), under which automobile insurers are required to issue policies to high-risk drivers.

Arbella challenged MAIP Rule 36, which regulates agreements called "limited assignment distribution agreements" or LADAs. A LADA is an agreement under which one insurer, called an "assigned risk company," or ARC, services, for a fee, all of the high-risk policies another insurer was assigned under MAIP.

Rule 36 sets out several requirements for LADAs. It states that insurers with less than five percent of the market share may assign their risks without approval from the insurance commissioner, and that insurers with more than five percent of the market share must obtain the commissioner's approval. It also states that only insurers with more than one percent of the market share may serve as ARCs.

Arbella argued that Rule 36 harms consumers because high-risk drivers whose policies are assigned under a LADA will face higher rates from the assignee insurer than they would from the assignor insurer, and that large insurers are unfairly treated differently than small insurers under the rule.

The court noted that policies issued to high-risk drivers often require a disproportionate degree of administrative attention from the companies that service them. Companies with less market share, and therefore fewer assigned high-risk drivers, may be less well-equipped to give policyholders that extra attention. The court stated that is the reason that Rule 36 allows companies with a market share of five percent or less to enter LADAs without first seeking the commissioner's permission.

The court stated that the requirement that only companies with at least one percent of market share may serve as ARCs ensures that ARCs will have the necessary resources to manage the high-risk policies. It also stated that the minimum market share requirement means that ARCs will have a competitive rate on their voluntary policies. Since insurers are required to charge the same rate for their assigned high-risk policies as for their voluntary policies, the rule ensures that the rates charged for high-risk policies are competitive.

The court held that Arbella lacks standing to object to the rule because the statute at issue was not intended to protect insurance companies, but consumers.