11 - Legal Division
The Legal Division - including the Special Investigations Unit - assists the Commissioner of Insurance in administering the laws of the Commonwealth as they pertain to the protection of the insurance consumer through the regulation of the insurance industry. The Legal Division further assists the Commissioner of Insurance in monitoring the solvency of insurance companies by coordinating the rehabilitation of financially troubled insurers, and the takeover and liquidation of insolvent insurers.
11.2 2008 Goals
|•||Provide legal support and advice to the Commissioner of Insurance, Division staff, consumers, executive and legislative branch members and other interested parties in the Massachusetts insurance marketplace.||Complete|
|•||Review and analyze proposed or enacted legislation affecting insurance companies and the insurance buying public.||Complete|
|•||Research and draft regulations, regulatory bulletins and interpretative letters on Massachusetts insurance laws and regulations.||Complete|
|•||Serve as hearing officers in various regulatory proceedings, including hearings concerning new or amended regulations or financial transactions. Examples include proposed mergers, acquisitions or redomestications of Massachusetts domestic insurance companies.||Complete|
|•||Provide a flexible alternative to litigation through the adjudicatory hearing process conducted by the Hearings and Appeals Section. The process includes insurance rate proceedings, enforcement actions against Division licensees and administrative appeals, including appeals from decisions of the residual market entities overseen by the Commissioner of Insurance.||Complete|
11.3 Primary Activities
Reform of Private Passenger Motor Vehicle Insurance Market
As part of the continuing transition to a competitive private passenger motor vehicle insurance market, the Legal Division reviewed a variety of regulations related to the operation of that market. This review resulted in the repeal of certain regulations that the Commissioner of Insurance determined were now outdated.
The Commissioner of Insurance also issued a variety of regulatory bulletins to provide further guidance to the industry during the transition, particularly for policies issued on or after April 1, 2009.
The Commissioner of Insurance devoted substantial resources in 2008 to implementing a reform of the residual market for private passenger motor vehicle insurance to an assigned risk plan - known as the Massachusetts Automobile Insurance Plan (MAIP). The Commissioner determined that concurrent implementation of the MAIP in the private passenger motor vehicle insurance residual market and the introduction of competitive rating for private passenger motor vehicle insurance required Commonwealth Automobile Reinsurers (CAR) - the administrator of the motor vehicle insurance residual market - to change some of its rules of operation. Consequently, she promulgated emergency amendments to MAIP Rules 21 through 24, and Rules 26 through 38 in February. A Decision and Order was issued on May 6, 2008. The Commissioner of Insurance issued other Decisions and Orders relative to certain CAR and MAIP Rules in 2008 for which public hearings were held in 2007:
- Order on Proposed Amendments to Rules of Operation 23, 26, 28 and 30 (Order issued January 2, 2008)
- Order on Proposed Amendments to Rules of Operation 11 and 12 and Rules 29 and 31 of the Massachusetts Automobile Insurance Plan (Order issued January 16, 2008)
Implementation of Health Care ReformLegal Division attorneys devoted significant time to assisting the Division's Bureau of Managed Care and Health Care Access Bureau with the ongoing implementation of health care reform. These activities included reviewing and analyzing new or amended health care legislation, drafting new or amended regulations to conform with or implement health care laws, and drafting interpretive bulletins to provide guidance to the insurance industry on the implementation of various new and amended health care laws and regulations. Attorneys assisted the Bureau of Managed Care in implementing certain requirements under health care reform, including the dissolution of the Reinsurance Board and the implementation of the Advisory Council on Billing and Coding. Attorneys also assisted both the Bureau of Managed Care and the Health Care Access Bureau in representing the Commissioner of Insurance at various meetings related to health care reform - including meetings of the Health Care Quality and Cost Council, and meetings with the Division of Health Care Finance and Policy on Insurer Assessments, meetings with Healthy Mass on administrative simplification, and meetings with various consumer advocacy groups and insurance carriers on all aspects of health care reform.
Hearings and Appeals
In 2008, the Division held public hearings on rate filings concerning statewide workers' compensation rates and statewide homeowner's insurance rates for the residual market (MPIUA or FAIR Plan). Hearings were also held on two insurers' filings relative to Medicare supplement insurance rates. The Division held public hearings relative to the competitive private passenger motor vehicle insurance rate filings of five insurance companies. Five of these hearings were instituted in response to requests made to the Commissioner of Insurance by the Office of the Attorney General, while one was initiated directly by the Commissioner. In each of the hearings requested by the Attorney General, the Commissioner of Insurance ultimately issued a Decision and Order not disapproving the insurer's competitive rate filing. The Division additionally held public hearings concerning the overall condition of the Massachusetts market for Medicare Supplement insurance, the costs of medical malpractice insurance for health care providers, and the fees paid by a dental service corporation to its participating dentists.
Division attorneys assisted in the review of two applications for the proposed acquisition of a Massachusetts domestic insurer, the proposed redomestication of a Massachusetts domiciled insurer to another state, and the proposed merger of a Massachusetts domestic insurer with a foreign insurer. The Division held hearings on each of these proposed transactions. Division enforcement counsel instituted 19 administrative actions against Division licensees and defended three appeals of Division license denials.
If a Massachusetts domestic insurance company's financial condition becomes impaired, the Commissioner of Insurance is empowered to seek judicial appointment as receiver of the impaired company. As receiver, the Commissioner acts as a fiduciary on behalf of the insurer's policyholders and creditors and seeks to provide that the insurer's obligations to its policyholders are met to the fullest extent possible. Although a receivership is designed to benefit all creditors of the impaired insurer, the protection of the insurer's policyholders is the utmost concern of the receiver.
Receiverships may involve plans to rehabilitate, run-off or liquidate the insurance company. If the Commissioner determines that an insurer lacks sufficient assets to meet all of its obligations to policyholders in the ordinary course of business, then such insolvent insurer will be liquidated. As a liquidator, the Commissioner marshalls the insolvent insurer's assets, liquidates those assets, adjudicates claims and makes distributions to approved creditors of the company.
If a foreign insurance company doing business in Massachusetts becomes financially impaired, the Commissioner may seek judicial appointment as ancillary receiver for the purpose of conserving the impaired foreign insurance company's assets in the Commonwealth for the benefit of such insurer's Massachusetts policyholders and creditors.
During 2008, Legal Division attorneys worked extensively on several actions in state court. Arbella Mutual Insurance Company and the Massachusetts Association of Insurance Agents filed a Complaint for Declaratory Relief and Appeal from the Decision and Order of the Commissioner with the Superior Court on June 5, 2008. The companies are appealing a decision of the Commissioner dated May 6, 2008, to implement certain rules in the Massachusetts automobile insurance residual market (MAIP). Their general claims are that the Commissioner of Insurance exceeded her statutory authority by promulgating several rules related to the transition to managed competition in the private passenger automoibile insurance market. The Division disputes these claims and asserts that the Commissioner acted within the scope of her authority in all respects. Currently, this matter is awaiting assignment to a judge in Superior Court.
The Legal Division responded to a total of approximately 75 written public records requests in 2008. In addition, attorneys handled an average of three to four oral public record requests per week over the course of the year. The Office supervised and assisted in responding to a substantial number of public records inquiries through other Division departments, including Consumer Services, Financial Surveillance, Policy Forms Review, Producer Licensing, and Special Investigations. Public records inquiries increased in 2008.
Staff attorneys continue to serve as appointees by the Commissioner of Insurance to an advisory committee that reviews all applications for written consent to engage or participate in the business of insurance under the provisions of the federal Violent Crime Control and Law Enforcement Act of 1994, 18 U.S.C. § 1033 (1033 Committee) and makes recommendations to the Commissioner on such applications. In 2008, the 1033 Committee received two applications for written consent to engage or participate in the business of insurance as unlicensed employees, as opposed to insurance licensees. Both applications for written consent were denied by the Commissioner of Insurance.
11.4 Special Investigations & Enforcement
The Special Investigations Unit (SIU) investigates allegations of misconduct by Division licensees, and pursues enforcement actions where appropriate. These cases include finding and reviewing evidence supporting allegations of unfair methods of competition, unfair or deceptive acts or practices in the business of insurance, and other violations of insurance laws and regulations.
|•||Thoroughly investigate cases referred by the general public, other state and federal investigative and prosecutorial agencies, as well as other sections of the Division involving allegations of unfair methods of competition, unfair or deceptive acts or practices in the business or insurance, and other violations of insurance laws and regulations.||Complete|
|•||Pursue enforcement actions, which may include negotiated settlements, consent agreements or administrative decisions - including cease-and-desist orders, compliance programs, license suspension or revocation, and the imposition of financial penalties.||Complete|
|•||Make referrals to federal and state government agencies, as well other regulatory bodies, and reportevidence of criminal activity to the appropriate law enforcement authorities.||Complete|
For calendar year 2008, Special Investigations and Enforcement closed 490 cases resulting in the suspension or revocation of 27 individual insurance licenses, and the assessment of $226,735 in financial penalties and $5,639 in restitution. These cases involved a variety of alleged violations of insurance laws and regulations, including: licensees failing to make appropriate disclosures on insurance license applications; licensees failing to timely disclose administrative or criminal matters to the Division; licensees engaging in forgery or theft of insurance premium; insurers issuing policies without the proper license authority; insurers using unapproved policy forms or issuing policies at unapproved rates; and, insurers failing to timely renew insurance producer appointments.
During 2008, the Special Investigations Unit reported enforcement actions online to the NAIC's Regulatory Information Retrieval System. Enforcement actions also are posted on the Division's website. In addition, the SIU staff participated in the Online Fraud Reporting System, the State Regulatory Information Retrieval System Alert Notification System, and the Special Activities Database System sponsored by the NAIC.