SJC rejects insurance agents' challenge to MAIP rules

I have been discussing Arbella Mut. Ins. Co. v. Comm'r of Ins., in which the Supreme Judicial Court addressed several issues relating to the Massachusetts Automobile Insurance Plan (MAIP), under which high-risk drivers obtain automobile insurance issued by private insurers.

The Massachusetts Association of Insurance Agents (MAIA) challenged MAIP Rule 30.C. That rule establishes a process by which an insurer may opt to move a high-risk driver assigned to it under MAIP to its voluntary portfolio. Under the rule, insurers doing so must currently continue to pay a commission to the agent who submitted the application to MAIP; but after April 1, 2011 they will no longer need to do so.

MAIA argued that 1) Mass. Gen. Laws ch. 175 § 113I requires that a commission continue to be paid; 2) the rule violates Mass. Gen. Laws. ch. 175 § 162F which codifies the "American Agency System," by giving agents the exclusive right to data necessary to solicit insurance policy renewals.

The court held that policies assigned under MAIP do not come within the American Agency System because the insurance agents have a statutory rather than contractual relationship with the insurers. The agents submit the MAIP application on behalf of a high-risk driver. The application is randomly assigned to an insurer. The agent has no contract with the randomly-assigned insurer.

The court also rejected MAIA's argument that Mass. Gen. Laws ch. 175 § 113I requires the insurer to continue to pay "fair and reasonable" commissions because insurers who take advantage of the rule to offer voluntary renewals are acting "pursuant to the plan approved under § 113H." It held that the term "pursuant to" only requires insurers to pay commissions for policies involuntary assigned to them. Policies that have been transferred to the voluntary market no longer come within the statute.