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RECORDS OF MEETINGMay 13, 1999
DEFAULTED BROKERS COMMITTEE
RECORDS OF MEETING
DEFAULTED BROKERS COMMITTEE
A meeting of the Defaulted Brokers Committee was held at the offices of Commonwealth Automobile Reinsurers, 100 Summer Street, Boston on
Thursday, May 13, 1999 at 10:00 A.M.
Members present -
Mr. Sumner D. Gilman- Chairman
Economy Insurance Agency, Inc.
Mr. Peter Chung*CGU Insurance Companies
Mr. Peter J. DignanCommerce Insurance Company
Mr. James O'Brien**Safety Insurance Company
Ms. Nanci S. PetersGeorge Peters Insurance Agency
*Substituted for Mr. David S. Coffey
**Substituted for Mr. David F. Brussard
Commonwealth Automobile Reinsurers
Mr. Joseph J. Maher, Jr.Vice President, General Counsel & Secretary
Mr. Paul CorsettiDirector of Communications
Mr. Timothy CostainMarket Relations Manager
Mr. Ralph Iannaco President Mr. John Metcalfe Director of Administration
& Market Relations
Mr. Michael TrovatoExecutive Vice President & Treasurer
Ms. Pamela WallaceUnderwriting Manager
Ms. Lauren ClarkArbella Mutual Insurance Company Ms. Diane Nguyen
Garrett Harris, Esq.Gallagher & Gallagher, P.C.
Mr. William CommetteMiddlesex Insurance Company
Roberta Fitzpatrick, Esq.Mintz, Levin, Cohn, Ferris, Glovsky and Popeo
John Plotkin, Esq.
Mr. Peter ElmsTravelers Insurance Company
Chairman Gilman called the meeting to order at 10:00 A.M.
D.B.
99.01RECORDS OF PREVIOUS MEETING
A motion was made by Mr. Dignan and seconded by Mr. O'Brien to approve the records of the Defaulted Brokers Meeting of March 24, 1998, as written.
The motion passed on a unanimous vote.
DB
99.02U.S.F. & G. / McCARTHY-GRANTHAM INSURANCE AGENCY, INC.
At its meeting in March 1998, Attorney Owen Gallagher, representing USF&G, provided the Defaulted Brokers Committee with an update on the default proceedings involving the McCarthy-Grantham Insurance Agency, Inc., indicating that the default appeared to be coming to a conclusion. He stated that the matter had been before the Hampden Superior Court and that a motion for Summary Judgement against Kenneth Golash and the Golash Grantham Insurance Agency, Inc., successor to the McCarthy-Grantham Agency, to eliminate the indebtedness to USF&G had been denied. He added that attempts to block the sale of the agency and recover assets formerly held by the McCarthy-Grantham Agency were also unsuccessful. Attorney Gallagher noted that, following the agency sale, an offer for settlement from Mr. Golash's attorney for $10,000 was submitted to USF&G and was currently under consideration. Attorney Gallagher raised the possibility of attempting to secure an attachment to the proceeds of the sale of Mr. Golash's agency, but acknowledged that would require additional court action and legal expenses with no guarantee such action would be successful. At that time he offered that his inclination to recommend that the company accept the settlement offer and close the default.
DB
99.02U.S.F. & G. / McCARTHY-GRANTHAM INSURANCE AGENCY, INC. (continued)
Mr. Gilman noted for the record that Attorney Gallagher has represented his company in the past and offered to not participate in the matter if any party objected to his involvement. There was no objection to Mr. Gilman's participation in the matter.
Attorney Gallagher briefly reviewed the events related to the default of the McCarthy Grantham Insurance Agency, Inc. and informed the Committee that the case had recently been settled for a nominal amount of money. He said that there was no further action to take in the matter and requested that reimbursement be granted in the amount of $182,100.24 in defaulted premium and $75,886.45 in legal expenses.
Mr. Dignan noted that at one time Mr. Gallagher had been successful in securing an injunction against commissions earned by Kenneth Golash rewriting the accounts of the McCarthy Grantham Agency through his own agency with Arbella Mutual. He questioned what had happened to those commissions and was told that that the court had vacated the injunction in the interests of allowing Mr. Golash to operate his business and approximately $40,000 in commissions held in escrow were released. Mr. Dignan indicated that he believed that USF&G through attorney Gallagher, had acted appropriately and made every attempt possible to mitigate the default.
A motion was made by Mr. Dignan and seconded by Mr. O'Brien to recommend to the Governing Committee , subject to CAR Staff's audit of the defaulted premium and legal fees in question, reimbursement up to the following amounts:
$182,100.24 - Defaulted Premium
$75,886.45 - Legal Fees
$257,986.69 - Total
The motion passed on a unanimous vote.
DB
99.03CIGNA PROPERTY & CASUALTY COMPANY/BLASETTI INS. AGENCY
At its July 12, 1994 meeting, the Defaulted Brokers Committee was notified of CIGNA Property & Casualty’s intent to pursue reimbursement of defaulted premium incurred through policies written through the Blasetti Insurance Agency amounting to approximately $378,180. CIGNA representatives were aware of the meeting but were unable to attend the meeting to present their case. The Committee agreed to postpone the matter to a future meeting.
At the October 13, 1994 meeting of the Defaulted Brokers Committee, CIGNA, in a letter to the Committee, advised that they had reached an agreement with the Blasetti Insurance Agency which called for the repayment of monies owed the company. CIGNA noted they were not seeking reimbursement for defaulted premium or legal expenses at that time, nor did they anticipate such a request in the future, provided the Blasetti Agency satisfied its repayment obligations.
In December 1994, C.A.R. was notified by CIGNA, of the agency's default on repayment of the outstanding balance owed the company in the amount of $290,672.69.
DB
99.03CIGNA PROPERTY & CASUALTY COMPANY/BLASETTI INS. AGENCY (continued)
At its March 23, 1995 meeting the Defaulted Brokers Committee requested that CIGNA provide documentation as to the actions it took to mitigate the agency’s payment problems.
Prior to the June 12, 1996 meeting of the Defaulted Brokers Committee , CIGNA notified CAR that they had changed their legal representation in the case and requested a postponement on the matter until the next meeting of the Committee.
At the February 1997 meeting, CIGNA representatives provided a status report on the default proceedings, noting that there appear to be no assets available to secure and that the company had initiated no court action in connection with the matter. The Defaulted Brokers Committee expressed concern whether or not the company had acted appropriately to mitigate the default exposure and considered the possibility of partial reimbursement. To that end, the Committee voted to postpone a decision on the matter until its next meeting and directed CIGNA to provide additional information to C.A.R. Staff which might be helpful to the Committee in determining whether a compromise reimbursement amount would be appropriate.
At its March 24, 1998 meeting, the Committee was notified that the company had not completed compiling the information as directed by the Defaulted Brokers Committee. CIGNA requested, and the Committee granted a continuation of the matter to its next meeting.
Prior to the May 13, 1999 meeting, CAR received a request form Counsel representing CIGNA, requesting another continuance of the matter.
A motion was made by Mr. Dignan and seconded by Mr. Chung to grant a continuance until the Committee's next meeting.
The motion passed on a unanimous vote.
DB
99.04COMMERCE INSURANCE CO./ROBERT SCHWINT INSURANCE AGENCY
At its March 1995 meeting, the Defaulted Brokers Committee heard testimony from the Commerce Insurance Company relative to the premium default of the Robert Schwint Insurance Agency. The Committee granted the expenditure of legal fees not to exceed $10,000.
At its June 1996 meeting the Committee was informed that negotiations with the agency for repayment of the monies owed were ongoing. Commerce noted that a judgment was issued against the agency of approximately $41,000 but that the attachment of commissions earned by Mr. Schwint through another agency, were expected to cure the default amount. Commerce estimated that its anticipated legal expenses would amount to approximately $7,000.
DB
99.04COMMERCE INSURANCE CO./ROBERT SCHWINT INSURANCE AGENCY(continued)
At the Defaulted Brokers Committee meeting of February 26, 1997, the Committee was advised that due to unsuccessful attempts to satisfy the judgment against Mr. Schwint, a complaint had been filed to attach commissions Mr. Schwint was earning through a brokerage agreement with the Joseph Byrne Insurance Agency. Commerce anticipated securing approximately $20,000 annually over the next 2-3 years which would cure the default. At that time the Committee voted to approve an additional $4,000 in legal fees.
At its March 24, 1998 meeting the Committee was informed that the company had been able to obtain a judgement against Robert Schwint from Worcester Superior Court in the amount of $56,774.90 representing the default amount and interest, extraordinary expenses and legal fees. Attorney Roberta Fitzpatrick, representing Commerce, indicated that the default amount now stood at $31,768.29. Attorney Fitzpatrick was hopeful of recoupment in the vicinity of $20,000-$30,000. The company also requested and was granted an additional $1,000 in anticipated legal expenses.
At the Committee's May 13, 1999 meeting, Mr. Dignan, an employee of the Commerce Insurance Company, did not participate in the matter.
Mr. Gilman noted for the record that Attorney Fitzpatrick has represented his premium finance company in the past on matters unrelated to this matter. There was no objection to his participation.
Attorney Fitzpatrick expressed optimism that the agreement reached between Commerce and the Byrne Insurance Agency for repayment of the amount awarded in the judgement would satisfy all of the defaulted premium. She requested that Commerce be reimbursed for legal fees associated with the Schwint default totaling $15,186.11, adding that an accounting of those legal fees had been submitted to CAR for review.
Ms. Peters made a motion which was seconded by Mr. O'Brien to recommend to the Governing Committee , subject to CAR Staff's audit of the applicable legal fees, reimbursement up to the following amount:
$15,186.11 - Legal Fees
The motion passed on a unanimous vote.
DB
99.05METROPOLITAN & CNA INSURANCE CO.’S/AUTO INSURANCE, INC.
At its June 1996 meeting, the Defaulted Brokers Committee was informed of the default of the Auto Insurance, Inc. in the amounts of approximately $24,000 to Metropolitan and approximately $17,000 to CNA. The Committee was informed that all owed premium amounts were being satisfied through a combination of withholding of commissions and through a repayment agreement secured with the successor agency. The Committee granted the expenditure of legal expenses not to exceed a combined total of $20,000.
DB
99.05METROPOLITAN & CNA INSURANCE CO.’S/AUTO INSURANCE, INC.(continued)
At its February 26, 1997, meeting the Committee was advised that Metropolitan had been able to reduce the amount of defaulted premium owed the company from approximately $24,000 to $920.85. Legal expenses at that time stood at $10,200 and minimal additional legal action was expected. The Committee was also informed that CNA was owed $60,730.82, comprised of $30,340.20 in unremitted premium and $30,399.62 in return premium which the company was forced to repay to two finance companies defrauded by Auto Insurance, Inc. The company filed suit against Auto Insurance, Inc. seeking to recover the monies owed and was anticipating a favorable judgment allowing attachment of the assets of Auto Insurance, Inc. At that time legal expenses totaled $6,900.
At the March 24, 1998 meeting of the Defaulted Brokers Committee, Attorney Roberta Fitzpatrick, representing Metropolitan, advised that the default had subsequently been reduced from to approximately $920. She said that little additional action was expected and the company did not anticipate requesting reimbursement for defaulted premium.
At the Committee's May 13, 1999 meeting, Attorney Fitzpatrick reported on behalf of Metropolitan, that virtually all of the defaulted premium incurred had been recouped and confirmed that the company was not requesting reimbursement of any defaulted premium. She did request that legal fees relating to her activity on behalf of Metropolitan in the amount of $11,312.16 be reimbursed.
CAR Counsel, Joseph Maher, advised that he had reviewed documentation submitted by Attorney Fitzpatrick relating to legal services provided to Metropolitan and indicated that those services appeared to be reasonable and appropriate.
A motion was then made by Mr. Dignan and seconded by Mr. O'Brien to recommend to the Governing Committee that reimbursement be granted in the following amount:
$11,312.16 - Legal Fees
The motion passed on a unanimous vote.
Attorney Fitzpatrick, also representing CNA in the default of Auto Insurance Inc., previously indicated that attempts to recoup defaulted premium had been far less successful than those of Metropolitan. She indicated that a judgement was obtained against the agency in the amount of $64,738.52, representing the defaulted premium plus interests and associated costs, but attempts to collect the monies owed to CNA were unsuccessful. In explaining why CNA had not been successful in recovering money where Metropolitan had been, Attorney Fitzpatrick said that the commercial automobile business produced by the Auto Insurance Inc. was not retained by its successor agency, the Thomas Noone Insurance Agency. Consequently, CNA did not have the same leverage in the form of policy expirations that Metropolitan did with the private passenger business. She expressed reservations about Thomas Noone's willingness to cooperate with CNA and indicated that he may file bankruptcy to avoid repayment obligations. Ms. Fitzpatrick indicated that she had filed suit against Thomas Noone under a successor liability theory and opined that chances were good that a summary judgement could be obtained with the possibility of collecting against Thomas Noone's current book of business placed with Liberty Mutual Insurance Company. She indicated that the Committee will be advised as events unfold in the matter.
DB
99.05METROPOLITAN & CNA INSURANCE CO.’S/AUTO INSURANCE, INC.(continued)
Mr. Maher advised that to the extent that Ms. Fitzpatrick's action against Thomas Noone at this time is predicated on court action and a successor liability theory, at some point it might be appropriate for the Committee to consider a possible link to Rule 14 and the continuing Exclusive Representative Producer appointment eligibility of the Thomas Noone Insurance Agency.
DB
99.06MIDDLESEX INSURANCE CO. / T.J. MCGUIRE INSURANCE. AGENCY
At its March 24, 1998 meeting the Defaulted Brokers Committee was presented with a request for by the Middlesex Insurance Company for reimbursement for defaulted premium and unearned commission relating to the T. J. McGuire Insurance Agency. Middlesex indicated that the default amount had grown to $13,565.82 since termination of the agency's Exclusive Representative Producer appointment in March 1997. The company hoped to determine a final amount for which it would seek reimbursement during the second half of 1998. The Committee agreed to continue the matter and directed that Middlesex representative(s) meet with CAR Staff to determine an appropriate course of action in the matter.
Mr. William Commette of Middlesex Insurance Company informed the Committee that the default now stands at $14,189.47, consisting of defaulted premium, return commissions and finance company return premiums sent to the agency in error. He explained that he did meet with CAR Staff after the last Defaulted Brokers Committee meeting and discussed various options in the interests of mitigating the company's exposure in the matter. He indicated that at that point in the default process most of the measures discussed were no longer useful. Mr. Commette indicated that following termination of the agency's Exclusive Representative Producer appointment for violations of CAR Rules and company remittance procedures, the agency principals essentially abandoned the business, requiring the company to service the in force accounts. He said that Middlesex chose to attempt to assist in the sale of the book of business rather than seizing it, but noted that a dispute between the agency principal and her father as to the actual ownership of the agency undermined the company's efforts. Mr. Commette admitted that Middlesex did not hold commissions following the appointment termination and acknowledged that company initiated non-renewal processing, approximately 90 days after termination, allowed diminution of the assets available to the company for possible recoupment of money owed. He submitted a summary sheet listing company activities during the past year which was entered into the meeting docket (see attached). Mr. Commette reviewed the summary and noted that the company did secure a judgement against the agency in the amount of $16,342, but added that the defendants filed bankruptcy protection shortly thereafter. Middlesex was able to seize the defendant's automobile through its efforts, but the value of the vehicle was not enough to offset the default amount.
The Committee agreed that Middlesex did not act quickly enough following the appointment termination to protect itself from the situation which has resulted. Mr. Dignan noted that while he sympathizes with Middlesex and the difficulty it has had with the McGuire Agency, the company's failure to withhold commissions and take appropriate legal steps to secure agency assets has resulted in the defalcation being as large as it is.
DB
99.06MIDDLESEX INSURANCE CO. / T.J. MCGUIRE INSURANCE. AGENCY (continued)
A motion was made by Mr. Dignan and seconded by Ms. Peters to deny Middlesex's request for reimbursement.
The motion passed on a unanimous vote.
Mr. Maher advised Mr. Commette of his company's rights pursuant to CAR Rule 20.
DB
99.07AETNA C & S COMPANY/MICHAEL KING INS. AGY., INC.
At its July 12, 1994 meeting, Aetna informed the Defaulted Brokers Committee that the Michael King Insurance Agency, Inc. had no remaining recoverable assets and had been declared insolvent under Chapter 7 of the bankruptcy laws. Aetna reported the final amount of legal expenses incurred in the amount of $24,064.59 with defaulted premium in the amount of $120,179.02. The Committee approved reimbursement in the aforementioned amounts pending C.A.R. Staff audit and review.
Subsequently, Aetna forwarded correspondence requesting additional legal expense reimbursement in the amount of $1,705.66 and Mr. King forwarded documentation contesting the default amounts.
The Defaulted Brokers Committee held a meeting on October 13, 1994 at which time Staff reported that their audit of the default request had been completed confirming reimbursable defaulted premium in the amount of $120,179.02. Mr. King was not present at the October meeting to provide the Committee with clarification regarding the allegations made in his documentation. In light of the allegations made by Michael King as well as possible obligations by C.A.R. to subsequent actions involving the bankruptcy, the Committee directed C.A.R. Staff to review the information provided by both parties and report its findings at the next Defaulted Brokers Committee meeting.