Superior Court rules that insurer was not required to continue relationship with agent begun under CAR

In Calianos v. Commerce Ins. Co., 2012 WL 414464 (Mass. Super.), Judge Fabricant of the Massachusetts Superior Court held than an auto insurer was not liable to an agent when it terminated high risk policies assigned to it under the Commonwealth Automobile Reinsurers (CAR) program, when CAR was replaced by Massachusetts Automobile Insurance Plan (MAIP).

Under the old CAR program, all insurers who wrote auto insurance policies in Massachusetts were required to accept all high-risk applicants for insurance, but they had the option of merely administering the policies and ceding the profits and losses from such policies to the residual market.

An insurance agent who was unable to obtain a voluntary contract with an insurer could apply to CAR to be assigned as an Exclusive Representative Producer, or ERP. CAR appointed each ERP to an insurer.

The Commissioner of Insurance replaced CAR with MAIP, which I discussed in these posts (hit the link and then scroll down). Under MAIP, insurers are assigned, based on their market share, policies issued to high risk drivers, and are required to absorb any losses from those policies. MAIP became effective in 2008.

Under MAIP, agents are no longer assigned on an involuntary basis to insurers. Only agents who are licensed as Assigned Risk Producers, or ARP's, service the high-risk market.

While CAR was still in effect in 2006, CAR assigned insurance agent Jason Calianos as an ERP to Commerce.

In January, 2009, after MAIP replaced CAR, Commerce informed Calianos that he would no longer have authority to solicit or bind new policies and that Commerce would non-renew his existing policies. Commerce then issued notices of nonrenewal to Calianos's customers.

Calianos sued Commerce, alleging that Commerce had amended or terminated its agreement with him without the requisite notice, and that it declined to renew his customers' policies, depriving him of commissions.

The court held:

• Commerce did not breach Calianos's contract. His CAR contract terminated when CAR was replaced by MAIP.



• Commerce was not required by MAIP to continue its relationship with Calianos.



• Commerce did not act in bad faith when it did not renew Calianos's policies on a voluntary basis, because it was not required to do so and never had a voluntary relationship with him.



• Commerce was not liable for intentional interference with contractual relationships, because Commerce had no contractual duty to renew the CAR policies.

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.

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.

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.