(All images, information, and text courtesy of agencychecklists.com. Written by Owen Gallagher. Copyright 2017. All Rights Reserved)
Read the Original Article here: http://agencychecklists.com/2017/08/29/arbella-seeks-redistribution-of-car-commercial-risks-after-cleaning-up-fraud-in-agents-books-of-business-19755/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+AgencyChecklists+%28Agency+Checklists%29
On the first anniversary of its cancellation of Rapo & Jepsen Financial Services, Arbella has filed a Request for Review seeking from CAR reimbursement of extraordinary expenses incurred to rectify problems caused by the “fraudulent scheme” of its cancelled agency, Rapo & Jepsen. Arbella also seeks a redistribution of CAR’s residual market commercial business to maintain equity among Servicing Carriers.
In response to the request, CAR’s Commercial Lines Committee has scheduled a hearing on Arbella’s Request for Review for September 9, 2017.
Thousands of improperly licensed operators written as commercial risks through CAR
Arbella issued a cancellation of Rapo & Jepsen in March 2017, after an investigation established Rapo & Jepsen had a practice of writing commercial automobile insurance for ineligible or highly rated individual applicants by establishing sham corporations and business entities for a fee.
Arbella alleged in the cancellation proceedings before CAR that Rapo & Jepsen’s fraudulent scheme resulted in the agency’s book of commercial policies increasing forty-four percent (44%) between 2014 and 2015: From 2691 policies totaling $6.7 million in premiums in 2014, to 5370 ceded commercial policies in 2015 with $11.9 million in premiums.
Additional expenses and litigation incurred by Arbella with Rapo & Jepsen’s successor agency
CAR’s Market Review Committee upheld Arbella’s cancellation. However, following the termination notice, Rapo and Jepsen sold its commercial book of business, and other assets, to a former Rapo and Jepsen employee, Bruno Rozembarque, who had established a new agency called Point Insurance Agency (“Point”).
Arbella developed, at Point’s request, guidelines to address the fraud in the book of the business purchased by Point and then developed, on its own, a renewal application that was designed to assist in determining if the accounts at issue were legitimate commercial accounts.
Arbella’ guidelines and renewal application quickly resulted in Arbella nonrenewing much of the Rapo & Jepsen business Point purchased as either not being genuinely commercial business or because the insured vehicles’ operators were not validly licensed under Massachusetts law.
As its book dissipated through Arbella’s nonrenewals, Point filed legal and administrative proceedings for relief against Arbella in the Division of Insurance, the Superior Court and at CAR. Point claimed Arbella’s actions in nonrenewing allegedly fraudulent accounts in its acquired book of commercial auto business were illegal or unreasonable. These legal actions were unsuccessful except for a pending appeal before the Division of Insurance from CAR’s denial of Point’s Request for Review.
Removal of fraudulent accounts from CAR has made the assignments of risks inequitable
Arbella’s request for extraordinary expense reimbursement and redistribution is based on Arbella requesting CAR recognize:
The extraordinary effort that went into establishing the pattern of fraudulent conduct;
The subsequent appointment of a Rapo and Jepsen employee to service the Rapo book of business and the failure and refusal of the successor Agency, Point Insurance to work with Arbella to address the fraud;
The extraordinary efforts undertaken by Arbella in managing the situation, including the development of unique guidelines, the development of a renewal application designed to assist in the process, and the expense associated with implementation of these tools to fight fraud, and
The expansive fraud within the book of business and the conduct of the former Rapo and Jepsen employee who established Point Insurance and resisted the procedures put in place by Arbella.
The defense of significant litigation initiated by Point Insurance resisting Arbella’s fraud-fighting efforts.
The termination of the Rapo & Jepsen Agency and implementation of tools to help ferret out the noncommercial accounts have resulted in an inequitable distribution of business among the Limited Servicing Carriers in contravention of the Limited Servicing Carrier Program which requires that equity be maintained among the carriers.
Rebalancing needed to avoid a disincentive in fighting fraud
In its Request for Review, Arbella suggests that based on the Rapo & Jepsen and Point situations, reimbursement and rebalancing is appropriate to avoid a financial disincentive for Servicing Carriers to fight fraud. To Arbella, it incurred “extraordinary fraud-fighting expense and a delay in reviewing the available data and a delay in beginning the redistribution process would be inequitable under the circumstances.”
However, the extraordinary expenses Arbella seeks from CAR do not include the significant extra expense in connection with its investigation and termination of Rapo and Jepsen. Arbella apparently has waived any claims for Rapo & Jepsen related expenses by limiting its extraordinary expense request to the expenses incurred following Arbella’s termination of Rapo & Jepsen and the appointment of the Point Insurance Agency to Arbella.
History of Point, Arbella, and Rapo & Jepsen disputes
Point Insurance purchased the insurance business of Rapo & Jepsen after Arbella had cancelled Rapo & Jepsen’s commercial exclusive representative producer contract and just after the Market Review Committee had upheld Arbella’s cancellation.
The details of Arbella’s allegations and Rapo & Jepsen’s defense along with Point’s subsequent involvement appeared in the following Agency Checklists’ articles:
May 3, 2016, Agency Appeals Arbella Cancellation For Alleged Premium Fraud Scheme;
May 10, 2016, Arbella Filing Seeks To Prove Its Claim Of Premium Fraud Against Rapo & Jepsen;
May 17, 2016, Arbella Presents Its Fraud Claims At CAR Against The Rapo & Jepsen Agency;
June 21, 2016, Arbella Alleges New Evidence That Key Witness Sent To Brazil by Rapo & Jepsen; a
June 28, 2016, Arbella’s Cancellation of Rapo & Jepsen Upheld By CAR.
February 7, 2017 Point Insurance Loses Appeal to CAR Review Panel; Next Stop Commissioner of Insurance