<vt=11>
<pt=2>
RECORDS OF MEETING
GOVERNING COMMITTEE
A Meeting of the Governing Committee of the Commonwealth Automobile Reinsurers was held at the offices of C.A.R, on -
WEDNESDAY, FEBRUARY 19, 1992 AT 10:00 A.M.
The following Members were present -
Mr. Craig M. Bradley Mr. James D. Doherty
Mr. Richard W. Brewer *Mr. Daniel J. Foley, Jr.
Mr. Donald O. Burns Mr. Sumner D. Gilman
Mr. J. Barry May Mr. David J. Lane
Mr. Arthur J. Remillard, Jr. Mr. Robert V. McGowan
Mr. Edwin J. Rinehimer **Ms. Nanci Peters
Mr. James M. Stone
*Mr. Daniel J. Foley, Jr. substituted for Mr. Louis M. Xifaras.
**Ms. Nanci Peters substituted for Mr. George Peters.
There were also present -
Commonwealth Automobile Reinsurers
PresidentMr. R. M. LaFontaine
Executive Vice President & TreasurerMr. M. J. Trovato
Administrative Vice President & SecretaryMr. D. I. Jewell
Vice President and General CounselMr. J. J. Maher, Jr.
Vice President and Chief Information OfficerMr. P. P. Ryan
Vice President-Financial ServicesMr. J. V. Kelly
Vice President-ClaimsMs. V. B. Gedziun
Director of CommunicationsMr. P. W. Corsetti
Adm. Assistant for Industry RelationsMr. G. F. Monahan
Administrative ManagerMr. J. D. Metcalfe
Commonwealth Automobile Reinsurers
Underwriting ManagerMs. P. A. Wallace
Data Operations ManagerMs. W. S. Thompson
Statistical ManagerMs. M. S. Adgate
Statistical SupervisorMs. C. J. Bresler
Senior Actuarial AnalystMr. R. N. Nevins
Actuarial AnalystMs. J. E. Callahan
R.P./S.C. LiaisonMr. T. R. Weymouth
Adm. Ass't. to Adm. Vice PresidentMs. B. A. Seminatore
Massachusetts Division of InsuranceMr. Donald Baldini
Hale and DorrMr. R. W. Mahoney
Amica Mutual Insurance CompanyMr. J. J. Wolstencroft, Jr.
Arbella Mutual Insurance CompanyMr. W. D. Healey
The Commerce Insurance CompanyMr. D. H. Cochrane
Mr. Warren Ehrlich
CNA Insurance CompaniesMr. A. J. Carpentier
CU Homeland Insurance CompanyMr. G. E. Davis
Fitchburg Mutual Insurance CompanyMr. G. R. Larson
Mr. J. B. Ryan, III
Goodwin, Proctor and HoarMs. M. J. Dee
The Hanover Insurance CompanyMr. W. D. Howard
Independent Insurance Agts of MassachusettsMr. E. J. Donahue, Jr.
Insurco Consulting, Inc.Mr. W. C. McLean, Jr.
I.S.I. Systems, Inc.Mr. Donald Devers
Ms. D. B. Sparrow
John Hancock Property & Casualty Ins. Co.Mr. Jerry Heberlein
Metropolitan Property & Casualty Ins. Co.Mr. R. P. Suglia
Morrison, Mahoney & MillerMr. J. J. Moran, Jr.
National Grange Mutual Insurance CompanyMr. J. R. Conlon
New Hampshire Insurance CompanyMs. Anne Koeck
Norfolk & Dedham Mutual Fire Insurance Co.Mr. T. J. DelGrande
Mr. Leonard Zamansky
Plymouth Rock Assurance CorporationMr. G. H. Arnold
Mr. Edward Ford
Policy Management Systems CorporationMs. Jean Walsh
Quincy Mutual Fire Insurance CompanyMr. W. J. Whitebone
Safety Insurance CompanyMr. E. N. Patrick, Jr.
Travelers Insurance CompanyMr. P. F. Reichardt
Trust Insurance CompanyMr. Mark Sweeney
Worcester Insurance CompanyMs. P. A. Bauckman
Chairman Brewer called the meeting to order at 10:00 A.M. and announced that the Commissioner of Insurance approved the substitution of Ms.Nanci Peters for Mr. George Peters and Mr. Daniel J. Foley, Jr. for Mr.Louis M. Xifaras.
92.1 MINUTES OF PREVIOUS MEETINGS
A motion was made by Mr. James Doherty and duly seconded by Mr. Arthur Remillard to accept the Records of the Governing Committee Meetings of January 15, 1992 and January 28, 1992.
The motion passed on a unanimous vote.
92.5COUNSEL REPORT
Mr. Joseph J. Maher, Jr., Vice President and General Counsel, advised that a draft of the proposed amendments to Rules 11 and 17 were distributed to the Governing Committee prior to today's meeting for consideration and review (see attached). Mr. Maher advised that, at its last meeting, the Governing Committee adopted the Rules in concept. Rule 17 details certain commercial classifications that are excluded from the cession limitations calculations, while Rule 11 provides for exclusion from the commercial utilization formula, classifications that are excluded from the 1992 commercial cession limitations.
92.5COUNSEL REPORT (Cont.)
A motion was made by Mr. James Doherty and duly seconded by Mr. Robert McGowan to adopt the proposed amendments to Rule 11, Assessments and Participation - 1989 and Thereafter and Rule 17, Expense Allowance to Servicing Carriers on Representative Producer Business, and directed Staff to submit the proposed amendments to the Commissioner of Insurance for approval.
The motion passed on a unanimous vote.
Continuing, Mr. Maher advised that certain litigation brought by Allstate Insurance Company is pending at the Federal District Court. C.A.R. has received two decisions from the Court Magistrate. These decisions are reported to the District Court Justice, who must adopt the Magistrate's opinion before it becomes an order of the Court. Mr. Maher advised that one decision remanded to the Division of Insurance the claims originally brought in an administrative complaint by C.A.R. as to Allstate's obligations under the Rules of C.A.R. and the second decision stayed the consideration of the constitutional questions that were brought before the Federal Court by Allstate, until such time as the Commissioner's review has been completed. Mr. Maher suggested that further ramifications and strategies arising out of those two decisions would be appropriate for the Governing Committee to consider in Executive Session, along with a report on a meeting that was held with Allstate's attorneys regarding their Rule11 settlement of obligation.
In regard to United States Fidelity and Guaranty Company and Crum and Forster, C.A.R. has had additional meetings with their Counsel in regard to their withdrawal from the Massachusetts private passenger market. Mr.Maher suggested that due to relevance to pending litigation and strategies, it would be appropriate for the Governing Committee to consider this matter in Executive Session.
Continuing, Mr. Maher advised that in regard to Peerless Insurance Company and General Accident Insurance Company, there has been settlement negotiations, which raised the possible return of these companies to the Massachusetts motor vehicle insurance marketplace. Mr.Maher suggested that due to pending litigation, it would be appropriate for the Governing Committee to consider these matters in Executive Session.
Mr. Maher advised that a petition was submitted to the Commissioner of Insurance to review the terms and conditions of the settlement agreement reached between C.A.R. and CIGNA. C.A.R. has provided information to the Division of Insurance and Mr. Maher suggested that due to the pending dispute, it would be appropriate for the Governing Committee to consider this matter in Executive Session.
Also, Mr. Maher advised that in regard to discussion involving the American Transportation Insurance Company's obligation to C.A.R., it would be appropriate for the Governing Committee to consider this subject in Executive Session.
92.5COUNSEL REPORT (Cont.)
Continuing, Mr. Maher advised that the agreement with Aetna Casualty and Surety Company has been finalized in regard to its buy-out obligations. Mr. Maher suggested that where there are terms in that agreement that require further amplification and since they would be pertinent to pending negotiations, it would be appropriate for the Governing Committee to consider in Executive Session.
Mr. Maher advised that a hearing was held at the Division of Insurance on the petition of Holyoke Mutual Insurance Company to be granted certain exemptions under the counting of exposures for purposes of physical redistribution. Holyoke and C.A.R. were present at the hearing. Mr. Maher advised that Holyoke argued primarily on the effect the counts would have with regard to certain financial ratings, particularly, Best's. Mr. Maher reported that the matter was taken under advisement by the Hearing Officer, and that C.A.R. suggested a need for a resolution as soon as possible, because of the effect that it has on the overall "ERP Physical Redistribution Plan."
Mr. Michael Trovato, Executive Vice President and Treasurer, with regard to the Physical Redistribution Plan, advised that the process is midway through the free agency period. Staff is assessing the impact that the Aetna Casualty and Surety Company's withdrawal will have on the ability to achieve the goals of the Physical Redistribution Plan. Mr. Trovato advised that C.A.R. has moved approximately 40,000 exposures to-date, noting that of the eligible participating oversubscribed Servicing Carriers, approximately 47,000 Exclusive Representative exposures remain to be redistributed. Since Aetna's filing of its withdrawal plan with the Division of Insurance, C.A.R. has received fifteen two-party requests from Aetna producers for change in Servicing Carrier appointments to an undersubscribed Servicing Carrier. These two-party transfers involve approximately 15,000 exposures. Mr. Trovato advised that the Aetna's two-party transfers to undersubscribed Servicing Carriers have a dramatic impact on the ability of the oversubscribed Servicing Carrier business to be absorbed by the undersubscribed Servicing Carriers given the timeframes established by the Governing Committee.
After discussion, it was the consensus of the Governing Committee that C.A.R. Staff continue with the physical redistribution plan and objective regardless of the April 1, 1992 date.
Continuing, Mr. Maher distributed a letter, dated February 18, 1992, from Mr.Victor Fanikos, Legal Counsel for the Division of Insurance. Mr.Maher advised that the purpose of the letter was to clarify previous correspondence distributed to the Governing Committee. Mr. Maher advised that the letter basically points out that in regard to a pollution "buy-back", it is the policyholder's option for the "buy-back" and, further, it points out that the "buy-back" for C.A.R.'s purpose is subject to the limitations on coverage availability as contained in Rule 6, B, of the Rules of Operation.
92.5COUNSEL REPORT (Cont.)
In conclusion, Mr. Maher advised that C.A.R. has received new information relative to the Hartford cases, which would be appropriate for the Governing Committee to consider in Executive Session.
92.6MARKET REVIEW COMMITTEE
Mr. James Doherty advised that an oral report of the action taken by the Market Review Committee, at its December 20, 1991 Meeting, was presented at the January meeting of the Governing Committee. The written Records of the meeting being available, a motion was made by Mr. James Doherty and duly seconded by Mr. David Lane to accept the Records of the Market Review Committee Meeting of December 20, 1991.
The motion passed on a unanimous vote.
Continuing, Mr. Doherty, reporting on the Market Review Committee Meeting of January 23, 1992, advised that the Committee considered an appeal by Mr. Frank J. Stout of the Stout Insurance Agency in regard to the termination of his agency's Exclusive Representative Producer (ERP) appointment by the Liberty Mutual Insurance Company for failure to develop and maintain a minimum book of business. Mr. Doherty advised that the Market Review Committee voted to deny the appeal and uphold the termination by Liberty Mutual Insurance Company.
The Market Review Committee considered an appeal by Ms. Camille Chesnick of the Camille Chesnick Insurance Agency in regard to the decision of C.A.R. Staff refusing to grant the agency a commercial ERP appointment. Mr. Doherty advised that Staff's denial was based on the subsidiary status of the agency, whereas the parent agency maintains a voluntary automobile relationship with the John Hancock Property and Casualty Insurance Company as a captive agent. Mr. Doherty reported that the Market Review Committee voted to uphold the appeal and directed C.A.R. Staff to assign the agency a commercial Servicing Carrier.
Continuing, Mr. Doherty reported that the Market Review Committee considered an appeal by Mr. Bruce E. Cluett of the Cluett Insurance Agency in regard to the decision by Aetna Casualty and Surety Company to remove the agency from the commercial direct bill program. Mr. Doherty advised that the Market Review Committee voted to uphold the appeal and directed Aetna to reinstate the agency on the company's commercial direct bill program.
Mr. Doherty advised that the Governing Committee, at its January 15, 1992 Meeting, directed the Market Review Committee to review the issues which would assure that the Physical Redistribution Plan would be a one-time occurrence as outlined in the Commissioner's Decision and Order of December 20, 1991 and to address potential compensation for expenses incurred by ERPs required to move their books of business as a result of
92.6MARKET REVIEW COMMITTEE (Cont.)
the Physical Redistribution Plan. Mr. Doherty advised that the Market Review Committee voted five in favor, with Messrs. Cochrane, Crimmins and Ms. Fortino opposed, to recommend, for Governing Committee approval, that ERPs who participate in the Physical Redistribution Plan be properly compensated. The Committee also voted six in favor, with Mr. Crimmins and Ms.Fortino opposed, to recommend that the Governing Committee appoint either a special ad hoc committee or refer back to the Market Review Committee to analyze the specific costs involved and to make recommendations as to a dollar amount to compensate ERPs who are forced to participate in the Physical Redistribution Plan.
A motion was made by Mr. James Doherty and duly seconded by Mr. Sumner Gilman to adopt the recommendations of the Market Review Committee.
Mr. Robert McGowan expressed concern as a voluntary agent as to why there is a proposal to compensate ERPs involved in the Physical Redistribution Plan, who end up moving a book of business. Mr.McGowan advised that as a voluntary agent, he had moved books of business and had not received compensation.
After discussion, a substitute motion was made by Mr. David Lane and duly seconded by Mr. Robert McGowan that there be no expense reimbursement for Exclusive Representative Producers that as a result of the Physical Redistribution Plan have been required to move a book of business.
Mr. Sumner Gilman commented that ERPs are incurring unusual expenses which they should not be expected to absorb as a result of an imposed physical redistribution. He noted that, in his opinion, there is no similarity between an insurance carrier that on its own action withdraws from writing automobile insurance and a physical redistribution of ERPs from oversubscribed Servicing Carriers and that a voluntary agent, unlike an ERP, has the opportunity to negotiate an expense reimbursement with its company. Mr. Gilman noted that the Market Review Committee's recommendation is an acknowledgment that moving a book of business is an expensive proposition for an ERP. The Market Review Committee is recommending that an ad hoc committee or the Market Review Committee be instructed to analyze those costs associated with moving a book of business.
After lengthy discussion, a motion was made by Mr. Robert McGowan and duly seconded by Mr. James Stone to move the question. The motion passed on a unanimous vote.
The substitute motion passed nine in favor, with Messrs. Doherty, Foley and Gilman opposed.
Continuing his report, Mr. Doherty advised that the Market Review Committee considered a request by Mr. Richard B. Paquin of the Gauthier Insurance Agency that the Committee grant the agency, who is an unprotected ERP of the Travelers Insurance Company, an exemption from participation in the ERP redistribution plan. Mr. Doherty advised that the Market Review Committee unanimously voted to deny the appeal.
92.6MARKET REVIEW COMMITTEE (Cont.)
Mr. Doherty reported that the Market Review Committee considered an appeal by the Pompeo & Sons Insurance Agency, Inc., in regard to the suspension of the agency's dual status ERP appointment for renewal business by the Aetna Casualty and Surety Company for failure to remit earned premium payments. Mr. Doherty advised that the Market Review Committee voted to uphold the appeal and to remove the suspension of the agency's ERP appointment.
In conclusion, Mr. Doherty reported that the Market Review Committee considered an appeal by Mr. Charbel A. Obeid in regard to the declination of his application for an ERP appointment by C.A.R. Staff for failure to conduct business within a credit eligible territory. Mr. Doherty advised that the Market Review Committee voted to uphold the appeal and directed Staff to assign his agency an appointment as an ERP.
A motion was made by Mr. James Stone and duly seconded by Mr. James Doherty to accept the Records of the Market Review Committee Meeting of January 23, 1992.
The motion passed on a unanimous vote.
92.7CLAIMS ADVISORY COMMITTEE
Mr. Joseph Conlon, reporting on the Claims Advisory Committee Meeting of February 19, 1992, advised that the Committee considered a request by Liberty Mutual Insurance Company for reimbursement of an excess judgment under Facility Rules of Operation, 12, c, (2), Claim Processing. The amount being requested was $115,000, plus legal costs incurred in defense of an action. Mr. Conlon advised that a subcommittee reviewed circumstances surrounding the request that went back to a December 27, 1979 accident at which time a Liberty Mutual insured and a Utica Mutual Insurance Company insured were involved in an accident. Liberty Mutual, subsequently, denied the uninsured motorist claim and Utica Mutual paid the claim and took it to Worcester Superior Court. The Court reviewed the case and issued a judgment against Liberty Mutual in the amount of $100,000, plus interest. There was no finding against Liberty Mutual under Chapter 173A and Liberty Mutual settled with Utica Mutual in the amount of $115,000. Liberty Mutual came to C.A.R.'s Claims Advisory Committee, which appointed a subcommittee that unanimously recommends that no reimbursement of the excess judgment above the policy limits of 10/20 be made. Mr.Conlon advised that the Liberty Mutual then appeared before the Claims Advisory Committee, which unanimously agreed that there be no reimbursement for the excess judgment.
Ms. Valerie Gedziun, Vice President of Claims, advised that Liberty Mutual Insurance Company has not exercised its right of appeal under Rule20 to-date.
92.7CLAIMS ADVISORY COMMITTEE (Cont.)
Continuing, Mr. Conlon reported that Cost Containment Seminars on Bodily Injury Price Evaluation, Uses of Diagnostic Testing, Settlement Techniques, along with a presentation by the Automobile Insurers Bureau on its study of Personal Injury Protection claims are scheduled for June 23, 24 and 25.
Mr. Conlon advised that the Performance Standards were considered and a subcommittee was appointed to review the Standards for possible modifications. Mr. Conlon noted that periodic reviews are required by the Auto Reform Law, Chapter 273, Section 41.
In conclusion, Mr. Conlon reported that the Claims Advisory Committee held a brief discussion on the effect of the Salvage Title Law and its disposal of totaled vehicles.
A motion was made by Mr. James Doherty and duly seconded by Mr. Robert McGowan to receive the oral report of the Claims Advisory Committee Meeting of January 22, 1992.
The motion passed on a unanimous vote.
92.8OPERATIONS COMMITTEE
Mr. Wayne Howard, reporting on the Operations Committee Meeting of January 23, 1992, advised that the Operations Committee considered an appeal by the United Community Insurance Company for reversal of a $300 statistical penalty, where C.A.R. Staff rejected the company's July, 1991, commercial liability, no-fault and physical damage premium statistical submission for high statistical error. Mr. Howard advised that the Operations Committee unanimously voted to grant the appeal based on the fact that the company attempted to correct the problem on numerous occasions. Mr. Howard noted that there was no financial impact to C.A.R. caused by the error and the company had since rectified the reporting problem.