COMMONWEALTH OF MASSACHUSETTS Office of Consumer Affairs and Business Regulation DIVISION OF INSURANCE One South Station • Boston, MA 02110-2208 (617) 521-7794 • FAX (617) 521-7475 TTY/TDD (617) 521-7490 http://www.mass.gov/doi DEVGAOLVEL.RNPOARTRICK DANIELO'CONNELL SECRETARYOFHOUSINGAND ECONOMICDEVELOPMENT TIMOTHY P. MURRAY LIEUTENANTGOVERNOR DANIELC. CRANE DIRECTOR NONNIE S. BURNES COMMISSIONEROFINSURANCE Amendments to the Rules ofOperation of the Commonwealth Automobile Reinsurers Docket No. C2004-02 Amended Decision and Order Following Remand on Changes to Rules ofOperation 21 through 40 I. Background and Procedural History This is the sixth in a series ofdecisions addressing Rules 21-40 ofthe Commonwealth Automobile Reinsurers ("CAR"), the operator ofthe residual market for motor vehicle insurance in Massachusetts. Rules 21-40 establish the Massachusetts Automobile Insurance Plan ("MAIP") as the mechanism for providing private passenger motor vehicle insurance to the residual market; those Massachusetts drivers who are unable to obtain such coverage in the voluntary market. The MAIP converts the residual market from a reinsurance pool (in which CAR members are responsible for a share of aggregate losses produced by business ceded to the pool that is proportional to their voluntary market share) to an assigned risk plan (in which each member is solely responsible for losses produced by individual risks assigned to it in proportion to its voluntary market share). CAR first submitted Rules 21-40 to the Commissioner for AmendedDecision andOrderFollowing Remandon Changes to Rules ofOperation 21 through 40; 2 DocketNo. C2004-02 approval on June 30, 2004; revisions were made and filed subsequently.1 Five earlier decisions have been issued in this docket, each following a public hearing with both oral and written comments submitted to the docket. A procedural history ofthe MAIP is attached to this Decision and Order as Appendix "A." The history ofthe early initiatives to reform the residual market that began in 2002 was reviewed in the August 27 Decision and the reasons supporting market reform were reviewed at length in the November 23 Decision; we therefore shall not repeat these matters here. The December 31 Decision approved the MAIP Rules, with an effective date ofJanuary 1, 2006. Days later, the Commerce Insurance Company ("Commerce"), the largest writer under the current system, appealed the December 31 Decision to the Superior Court. Its appeal principally challenged the authority ofthe Commissioner ofInsurance ("Commissioner") to implement an assigned risk plan as the residual market mechanism; Commerce also raised a number ofancillary issues relating to the relationship between aspects ofthe proposed plan and Massachusetts statutes. The Superior Court stayed implementation ofboth the revisions to the current CAR Rules and the MAIP until the matter was resolved and, in June 2005, it allowed Commerce's motion forjudgment on the pleadings. The Commissioner appealed the Superior Court's decision, and the Supreme Judicial Court allowed a motion for direct appellate review. On August 23, 2006, the Supreme Judicial Court unanimously affirmed the Commissioner's authority to promulgate an assigned risk plan for the residual market for private passenger motor vehicle insurance. Commerce Insurance Company, et al. v. Commissioner ofInsurance, 447 Mass. 478 (2006). The Supreme Judicial Court also found in favor ofthe Commissioner on all but one ofthe ancillary technical issues, the The initial rules were remanded to CAR in August 2004 with instructions to resubmit revisions by September24. A hearing took place in November 2004 on CAR's September submission; those rules, with further revisions, were approved on December 31, 2004. Later revisions were reviewed in October 2006. 2 The five earlier decisions were issued on the following dates: August 27, 2004; November23, 2004; December 31, 2004; December 13, 2006; and April 19, 2007. They will be referenced in this decision by those dates. 3 The December31 Decision also set out a sequence oftimelines for implementation ofchanges to CAR Rules 1 through 20 priorto full implementation ofthe MAIP. Digitized by the Internet Archive 2015 in https://archive.org/details/amendmentstoruleOOmass AmendedDecision andOrderFollowing Remandon Changes toRules ofOperation 21 through 40; 3 DocketNo. C2004-02 "Clean-in-Three" provision.4 The Supreme Judicial Court remanded the Clean-in-Three provision to the Commissioner for further proceedings to address that part ofthe MAIP rules that would have rendered certain drivers with Clean-in-Three driving records ineligible for coverage through the MAIP, but possibly unable to obtain insurance in the voluntary market.5 To address these issues, the Commissioner reviewed the MAIP Rules that had been approved in the December 31 Decision and revised them to, among other things, set a new timetable for the implementation ofthe MAIP, make changes necessary to address the Court's remand regarding Clean-in-Three policyholders, and clarify procedures relating to the operation ofthe MAIP.6 The result ofthat review was a set ofrevised rules known as the "Second Revised Rules." A hearing on the Second Revised Rules occurred on November 10, 2006, and the docket remained open through November 14 to receive additional statements. On December 13, 2006, the Commissioner issued a decision approving Proposed MAIP Rules 21-40, as well as certain amendments to CAR Rules 1- 20, to be effective January 1, 2007. No appeal was taken from the December 13 Decision and the MAIP Rules went into effect on January 1, 2007, as scheduled. A new Governor and administration took office in early January 2007. On January 19, 2007, the Acting Commissioner ofInsurance suspended MAIP Rules 21-40 and the amendments to CAR Rules 1-20, pursuant to Article X ofthe CAR Plan ofOperation. A hearing on the suspension was held on February 15. The speakers at that hearing included the Attorney General ("AG"), representatives ofinsurance companies and trade organizations, consumer advocates and producers. Their testimony, in large measure, reiterated concerns about the MAIP rules relating to Clean-in-Three drivers raised at earlier hearings. Some specific comments were made about burdens that might be placed on consumers because ofthe requirement that they obtain a letter from an insurer 4 A Clean-in-Three driver is an operator whose driving record shows no at-fault accidents resulting in an insurance claim, including a claim under the Personal Injury Protection coverage, or moving violations in the 36 month period preceding the application. 5 By the date ofthe Supreme Judicial Court decision, the deadlines for MAIP implementation set out in the December 31 Decision had already passed. 6 Concurrently, she reviewed amendments to the existing CAR Rules 1-20 that were needed because CAR had subsequently revised some ofthose Rules, as approved in the December31 Decision. AmendedDecision andOrderFollowingRemandon Changes to Rules ofOperation 21 through 40; 4 DocketNo. C2004-02 declining voluntary coverage and a provision relating to the notice that a company would be required to give policyholders when a producer transferred a book ofbusiness from one insurer to another. Producers expressed continuing concerns that the MAIP Rules would adversely affect their interests, and that ofconsumers, in maintaining their historic role in the Massachusetts marketplace for motor vehicle insurance. The decision on rule suspension, issued on April 19, 2007, remanded MAIP Rules 21-40 to CAR with specific instructions to consider only the provisions relating to operators with Clean-in-Three driving records and to submit proposed amendments to the Commissioner within 30 days.7 The April 19 Decision further stated that, following review ofthat submission, the Commissioner would decide whether to approve the MAIP Rules and the Clean-in-Three provisions contained in it. On May 16, the CAR Governing Committee approved amendments to Proposed MAIP Rules 21, 22 and 26 (the "May 16 Amendments"); it distributed those amendments to its members on May 18 in Bulletin 842. On May 21, the Plymouth Rock Assurance A Corporation ("Plymouth Rock") requested a hearing on the amendments. hearing notice, scheduling a hearing for June 15, was issued on May 24. The notice emphasized that the Commissioner had remanded proposed MAIP Rules 21-40 to CAR solely for the purpose ofmaking changes to those rules as they relate to motor vehicle operators with Clean-in-Three driving records, as defined in MAIP Rule 22. The purpose ofthe hearing, as set forth in the notice, was to "afford all interested parties an opportunity to provide oral and written testimony regarding the proposed amendments CAR approved on May 16, 2007." On May 24, Commerce also submitted a request for a hearing on the May 16 Amendments. The June 15 hearing was again well attended. The 48 individuals who spoke included a representative ofthe AG, members ofthe legislature, and speakers presenting the positions ofinsurance companies, insurance agencies, consumer advocates, and trade associations. In addition, a number ofwritten statements were submitted for the record. The record was closed at the end ofthe hearing. Although the stated purpose ofthe June 7 Although the MAIP rules were remanded as a whole, CAR was directed to amend only provisions relating to Clean-in-Three drivers. TheApril 19Decision also approved the changes to CAR Rules 2, 9, 11-14, and 17. Those changes, therefore, have been and are now in effect. No appeal was taken from theApril 19 Decision. 1 AmendedDecision andOrderFollowingRemandon Changes to Rules ofOperation 21 through 40; 5 DocketNo. C2004-02 15 hearing was solely to hear comment on CAR's proposed amendments relating to Clean-in-Three drivers, a preponderance ofthe testimony addressed more wide-ranging issues relating to whether the MAIP should be implemented.o Statements from participants who have consistently opposed the MAIP and those who have supported an assigned risk plan were consistent with the positions they have taken repeatedly in the past. II. The May 16 Amendments Rule 2 The proposed revision retains the procedure in G.L. c. 175, §1 13F, . pursuant to which companies who intend to nonrenew a motor vehicle insurance policy must, ifthe policy was written through an insurance agent (i.e., producer), send the notice ofnonrenewal to the agent rather than directly to the consumer. The producer is responsible for sending the notice to the consumer, unless another insurer has written a We policy to cover the risk. find that the proposed rule is consistent with the statute and will preserve the current relationship between consumers and their producers. It is responsive to producer concerns that earlier proposals, designed to assist consumers with Clean-in-Three driving records to locate coverage in the voluntary market, would adversely affect that relationship.9 In addition, in the event that a producer's book of business is transferred from one insurer to another, consumers who satisfy the Clean-in- Three criteria will retain that status with the successor insurer. Rule 22 The sole change is a ministerial clarification that the definition ofNew . Business will expire at the end ofthe transition period for MAIP implementation. No person objected to this change. Should it appear, at the end ofthe transition period, that CAR the rule should be adjusted, can consider appropriate changes. Much ofthe commentary at the hearing and in the written statements reiterated positions previously asserted throughout the process ofdeveloping the MAIP Rules, regardless ofchanges made to those Rules. 9 TheApril 19Decision, 9-10, summarized the revisions made to the MAIP after the Supreme Judicial Court's remand decision that were intended to encourage insurers to write Clean-in-Three drivers in the voluntary market, and the concerns expressed at the November 10 hearing on those revisions. In response to those concerns, the MAIP Rules approved on December 13, 2006 incorporated further revisions. Continuing concerns on issues relating to Clean-in-Three drivers led to the suspension ofthe Rules in order to accept additional comment on them. Comments from speakers about such matters as the requirement that consumers obtain a declination letter in order to qualify for coverage through the MAIP persuaded the Commissioner to remand the MAIP to CAR again to address issues related to Clean-in-Three drivers.