1999.02.24 - Records of Meeting



RECORDS OF MEETING

GOVERNING COMMITTEE REVIEW PANEL

A meeting of the Governing Committee Review Panel was held at the offices of Commonwealth Automobile Reinsurers, 100 Summer Street, Boston on –

WEDNESDAY, FEBURARY 24, 1999 AT 10:00 A.M.

Members present -

Mr. Richard W. Brewer - Chairman

Arbella Mutual Insurance Company

Mr. Joseph J. Giblin* Liberty Mutual Insurance Company

Ms. Nanci S. Peters George Peters Insurance Agency

* Substituted for Mr. Arthur J. Remillard, Jr.

CAR Officers present –

Mr. Ralph Iannaco President

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

CAR Staff present -

Mr. Paul Corsetti Director of Communications

Mr. Timothy Costain R.P./S.C. Coordinator

Mr. John Metcalfe Administrative Manager

Mr. Bruce Cregger CNA Insurance Companies

Ms. Joyce Smith Commonwealth Mutual Insurance Company

Ms. Ellen Sullivan

Mr. Gene Dvorkin Gene Dvorkin Insurance Agency

Robert Mahoney, Esq. Hale and Dorr

Mr. Robert Grant Insurance Fraud Bureau

Stephen Lagana, Esq. Lagana & Associates

Steven Kasten, Esq. McDermott, Will & Emery

Mr. Harold Salant One Call Insurance Agency

Ms. Marietta Paquette Paquette Insurance Agency

Richard Wholley, Esq. Roche, Heifetz, Murphy & Wholley

Mr. Stanley Shuman Shuman Insurance Agency, Inc.

Ms. Laurel Shuman

Mr. John Curran Smith & Brink

Lynn McCarthy, Esq.

Ms. Theresa Stokes Theresa Stokes Insurance Agency

Mr. David Brandeis Trust Insurance Company

Mr. Turin Auguste Turin Insurance Agency

Governing Committee Review Panel Chairman Brewer called the meeting to order at 10:00 A.M.

GCRP

99.01 Records of Previous Meeting

A motion was made by Mr. Giblin and duly seconded by Ms. Peters to approve the Records of the Governing Committee Review Panel meeting of October 29, 1998, as written.

The motion passed on a unanimous vote.

GCRP

99.02 Theresa A. Stokes Insurance Agency/Commonwealth Mutual Insurance Company

Theresa A. Stokes requested a hearing to appeal the December 1, 1998 decision of the Market Review Committee. The Committee unanimously voted to uphold the termination of her agency’s Exclusive Representative Producer appointment by the Commonwealth Mutual Insurance Company for failure to maintain regular business hours, report all coverages bound within two working days, remit payments on a timely basis, and notify the Servicing Carrier of any suspected fraud surrounding a loss.

Attorney Stephen Lagana, representing the Theresa Stokes Insurance Agency, said the allegations made by Commonwealth Mutual Insurance Company in its termination of the agency's Exclusive Representative Producer appointment are not supported by credible evidence. He noted that the company had not obtained affidavits in support of its charges that the agency had failed to maintain regular business hours and failed to submit coverages bound within forty eight hours. Mr. Lagana said that company charges of unauthorized brokerage agreements by Ms. Stokes are false, citing an affidavit from Mr. DaCosta confirming that he had a referral agreement with Ms. Stokes, but was not a broker for her agency and received no compensation for doing so. He said that Clovis Mendes, also purported by Commonwealth Mutual Insurance Company to be brokering business through the Stokes Agency, was actually an employee of Ms. Stokes and received a W-2 wage and tax statement reflective of his status with the agency. According to Mr. Lagana, in a show of good faith, Ms. Stokes severed her relationship with Mr. Mendes upon demand from the company. He also charged that the company had harassed Ms. Stokes and invaded her personal life looking for reasons to terminate her Exclusive Representative Producer appointment. He reviewed several specific policies cited by Commonwealth Mutual as a basis for appointment termination, indicating that the company was in error and had leveled very serious, but unsupported charges against Ms. Stokes.

Ms. Joyce Smith of Commonwealth Mutual Insurance Company acknowledged that the company had made errors in citing certain instances of alleged CAR Rule violations against Ms. Stokes. She noted that sloppy handwriting or misspellings of names had resulted in the company believing Rule violations had occurred, when in fact they had not. She provided documentation of an alleged date discrepancy in the binding of coverages submitted by the agency and noted that even considering that some of the allegations made by Commonwealth Mutual were not valid, Ms. Stokes had engaged in a pattern of conduct which warranted termination of her Exclusive Representative Producer appointment. Contrary to statements made by Mr. Lagana, she said that Mr. DaCosta confirmed to herself and another company employee that he did have a brokerage relationship with Ms. Stokes. Ms. Smith also indicated that Mr. Mendes maintained an unauthorized agency location in Framingham from which he provided the Stokes Agency with 85 risks starting in August, 1998. Ms. Smith explained that the company's investigation into Ms. Stokes' personal life related to a fraud investigation, which she said is ongoing and has been referred to the Insurance Fraud Bureau. She added that the company has denied several claims filed by insureds of the Stokes Agency for material misrepresentation and suggested that fraud has been perpetrated against Commonwealth Mutual with Ms. Stokes knowledge. She contended that much of the suspected fraudulent activity facilitated by the Stokes Agency can not be explained simply as the result of unwitting administrative errors by the producer. According to Ms. Smith, Ms. Stokes has a serious credibility issue, citing as an example, the exclusive use by Ms. Stokes and her husband, of a vehicle which appears to have been fraudulently obtained using a social security number belonging to a retired gentleman unknown to Ms. Stokes. According to Ms. Smith, Ms. Stokes has been given he benefit of the doubt several times and has failed to address serious allegations involving CAR Rule violations and fraud. Ms. Smith said that following termination of the agency's Exclusive Representative Producer appointment, the

GCRP

99.02 Theresa A. Stokes Insurance Agency/Commonwealth Mutual Insurance Co. (continued)

company received numerous calls from insureds of the Stokes Agency complaining that they were unable to contact Ms. Stokes for service. She said that due to the producer's unavailability, the company was also unable to deliver pre-stamped RMV forms used, in lieu of a certification stamp, for servicing accounts.

Attorney Lagana said that there is no evidence that Ms. Stokes had any knowledge of attempts to defraud Commonwealth Mutual. He said the company may have transposed a digit in the recording of the alleged phony social security number and reiterated his claim that the company had made unsupported and inconclusive allegations against his client. He requested that the appointment termination be overturned.

In response to a question from the Panel as to why clients were unable to contact the producer and why Ms. Stokes was unavailable to receive stamped RMV forms as indicated by Ms. Smith, Ms. Stokes indicated that Commonwealth Mutual withheld commission payments due her agency to cover anticipated negative commission activity relating to the non-renewal of her business. As a result, she had to terminate the employment of three employees and could not afford to maintain her office. She also noted that due to the company's imposed restriction on agency checks, she was often required to run to the Post Office for money orders, but was never gone long and always left a sign informing clients as to her expected return. She complained about the immediacy with which Commonwealth Mutual initiated non-renewal processing of her accounts even though she had appealed the appointment termination to CAR.

Mr. Giblin noted the company's acknowledgment that some of the CAR Rule violation cited were erroneous, and that there did not appear to be an egregious number of remittance violations based on the size of the book of business. He noted that the producer terminated the alleged brokerage agreements upon demand and said that the company's ongoing fraud investigation has not provided sufficient conclusive evidence, to date, to warrant termination of the agency's Exclusive Representative Producer appointment.

A motion was then made by Mr. Giblin and seconded by Ms. Peters to uphold the appeal and reinstate the appellant's Exclusive Representative Producer appointment.

The motion passed on a unanimous vote.

Mr. Maher advised the parties of their rights pursuant to CAR Rule 20.

GCRP

99.03 Trust Insurance Company/Stanley Shuman Insurance Agency, Inc.

The Trust Insurance Company requested a hearing to appeal the January 21, 1999 decision of the Market Review Committee, which upheld the appeal of the Stanley Shuman Insurance Agency, Inc. and overturned the termination of the agency's Exclusive Representative Producer appointment by the Trust Insurance Company. Trust had terminated the agency for alleged violations of CAR Rules and the ERP Agreement.

GCRP

99.03 Trust Insurance Company/Stanley Shuman Insurance Agency, Inc. (continued)

Attorney Steven Kasten, representing the Trust Insurance Company, requested that the Panel support Trust in its termination action. He said that Mr. Shuman has repeatedly violated CAR Rules and company procedures in the interests of increasing his commissions. Mr. Kasten referenced examples of the agency failing to verify and collect earned premium on policy rewrites, some of which were already with the Shuman Agency and Trust. He said the information to verify earned premium is available to the agency, but Mr. Shuman thought he could ignore his responsibility and get away with it. According to Mr. Kasten, Mr. Shuman also converted some clients with earned premium due, to agency bill for the purpose of financing premiums, even though he knew Trust is a total direct bill company. He said that Mr. Shuman was told to cease this activity and his failure to do so left the company with no choice, but to terminate the agency's appointment. He added that even after Trust agreed to hold the termination in abeyance pending the outcome of the agency's appeal to CAR, with the understanding that no polices would be premium financed, Mr. Shuman continued to convert business to agency bill in order to premium finance. Mr. Kasten also cited examples of the agency's alleged failure to forward money received by the agency on non-payment cancellation holds. He added that the Shuman Agency has presented no evidence to refute those charges. Mr. Kasten reiterated that Mr. Shuman has repeatedly violated CAR Rules in favor of increased commissions and while the agency's livelihood is not at issue, the best interests of the residual market are.

Attorney Richard Wholley, representing the Shuman Agency, said that the agency was appointed to Trust in 1991, but was audited for the first time in November, 1998. He contended that a Servicing Carrier can't conduct business in a certain way year after year, from which its producers develop an understanding of company expectations, and then suddenly change its policies and procedures without proper notice. He said that Trust's change in its earned premium verification procedure was drastic and although he and Mr. Shuman have repeatedly offered to meet with the company to develop a clear understanding of expectations, Trust has refused. Mr. Wholley noted that many of the cancellation hold payment submissions, which Trust claims to have not received within 3 days, include weekends. He also indicated that charges leveled by several ERPs that the company is not opening mail in timely manner would further explain payments not being recorded by the company as received within required timeframes. According to Mr. Wholley, the opportunity to cite producers for violation of its cancellation hold remittance procedure provides an incentive not to open mail submitted by high loss ratio ERPs. With respect to Mr. Shuman's agreement not to premium finance accounts, he explained that the producer thought the agreement referenced him specifically and that other premium finance companies could still provide a service to his insureds. Mr. Wholley called the termination reprehensible and asked that the agency's appointment be reinstated.

In response, Mr. Kasten noted that Trust changed its enforcement of existing company policy and procedures and the changes were not implemented overnight. He said that Trust has every right to expect adherence to its procedures and contract provisions. Mr. Kasten said the fact that an audit determined that the agency's books were in order does not speak to the issues driving the appointment termination.

CAR Counsel Joseph Maher, advised that several pieces of documentation had been submitted for the Panel's consideration and noted that those items would be added to the meeting docket. He also advised as to the options available to the Panel if it desired more time to read and consider the documentation.

GCRP

99.03 Trust Insurance Company/Stanley Shuman Insurance Agency, Inc. (continued)

Following brief discussion, a motion was made by Mr. Giblin and seconded by Ms. Peters to close the record and continue the matter until the next meeting of the Governing Committee Review Panel at which time the Panel would render its decision.

GCRP

99.04 Turin Insurance Agency, Inc. / Boston Old Colony Insurance Company

Mr. Turin Auguste requested a hearing to appeal the January 21, 1999 decision of the Market Review Committee which upheld the termination of his agency’s Exclusive Representative Producer appointment by the Boston Old Colony Insurance Company for failure to develop and maintain a minimum book of business pursuant to Rule 14, CAR Rules of Operation. CAR records indicate the agency was appointed in 1986 and maintains a book of business of approximately 153 vehicles

Mr. Auguste explained that following his agency's reassignment from Allstate Insurance Company to Amica Mutual Insurance Company, he experienced growth in production, but just the opposite occurred after his agency's reassignment to CNA (subsequently Boston Old Colony), in September, 1995, his production began to diminish. He said his agency provides a service to his community and he provides employment opportunities as well. Mr. Auguste said his agency is open 8 hours per day as well as weekends, but admitted that he is a full time teacher and does not make enough money through the agency to abandon teaching. Mr. Auguste charged that Boston Old Colony Insurance Company has not communicated well with his agency and has offered no training. In spite of those difficulties, he expressed optimism about improving the relationship and requested that he be given the opportunity to do so

Representing Boston Old Colony Insurance Company was Bruce Cregger, who indicated that the company has offered training to the agency, but Mr. Auguste has still not been able to meet CAR's minimum production requirements.

A motion was made by Ms. Peters and seconded by Mr. Giblin to deny the appeal.

The motion passed on a unanimous vote.

Mr. Maher advised the parties of their rights pursuant to CAR Rule 20.

There being no further business, a motion was made by Mr. Giblin and duly seconded by Mr. Peters to adjourn the meeting.

The motion passed on a unanimous vote.

The meeting adjourned at 12:30 P. M.

TIMOTHY J. COSTAIN

Representative Producer

Servicing Carrier Coordinator

Boston, Massachusetts

March 16, 1999

Note: These Records have not been approved. They will be considered for approval at the next Governing Committee Review Panel meeting.

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