10 - 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.
10.2 2009 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.
Review and analyze proposed or enacted legislation affecting insurance companies and the insurance buying public.
Research and draft regulations, regulatory bulletins and interpretative letters on Massachusetts insurance laws and regulations.
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.
Provide a flexible alternative to litigation through the adjudicatory hearing process conducted by the Hearings and Appeals Section, including insurance rate proceedings, enforcement actions against Division licensees and administrative appeals - including appeals from decisions of the residual market entities overseen by the Commissioner.
10.3 Primary Activities
10.31 Health Care
In response to concerns raised by the small business community, Governor Patrick directed the Division to investigate potential solutions to the problem of escalating health insurance premiums. The Division held a series of hearings to examine small business premium increases, focusing on the current efforts of health plans to reduce costs and future actions that may be necessary to eliminate substantial rate increases impacting the small group market. This series of hearings began with five introductory hearings held around the Commonwealth to provide the public an opportunity to comment on the questions the Division should consider in advance of the health plan hearings. The Division then conducted seven weeks of public hearings at which health plans were asked to respond to specific questions covering a wide variety of topics.
The Division also invited hospitals and provider groups to attend a series of hearings to provide information to the Division regarding claims administration, provider networks and provide rate negotiation processes. Division attorneys attended all hearings and are assisting in the creation of a report summarizing the information gathered during these hearings and providing recommendations to help address escalating health care costs for small businesses.
Special Sessions on Group Purchasing Cooperatives
In addition to the hearings described above, Governor Patrick directed the Division to schedule special sessions with stakeholders to discuss the development of "group purchasing cooperatives" for small group and individual health insurance. The Division explored the question of whether the creation of group purchasing cooperatives would allow small businesses and individuals to combine their purchasing power and seek out lower premiums through larger entities. The Division held six special sessions beginning November 10, 2009 and concluding January 12, 2010. The topics for discussion ranged from a general discussion of the small group laws to the introduction of health promotion programs to essential consumer protections. Division attorneys attended all sessions and are assisting in the review and analysis of the information presented by the various participants.
Implementation of Health Care Reform
Legal Division attorneys devoted significant time to assisting the Division's Bureau of Managed Care and Health Care Access Bureau with the continuing 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 ongoing requirements under health care reform, including participation in 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 of the Health Care Quality and Cost Council, meetings with the Attorney General's Office, and meetings with various consumer advocacy groups and insurance carriers on all aspects of health care reform. Division attorneys monitored and evaluated changes in federal laws and - in addition to issuing Bulletin 2009-09 - Division attorneys prepared consumer alerts related to COBRA and mini-COBRA. Additionally, Division attorneys assisted the Bureau of Managed Care with the creation of policy filing guidance documents for material changes required by 211 CMR 52.00, and changes to products offering exclusive provider networks or tiered benefits within closed network plans.
10.32 Automobile Insurance
Reform of Private Passenger Motor Vehicle Insurance Market
As part of the ongoing transition to a competitive private passenger motor vehicle insurance market, the Legal Division reviewed regulations related to the operation of that market. This review resulted in the promulgation of a new regulation, amendments of an existing regulation and the repeal of a regulation determined to be outdated. The Commissioner also issued a variety of regulatory bulletins to provide guidance to the industry during the transition.
Implementation of the Massachusetts Automobile Insurance Plan (MAIP)
The Commissioner of Insurance devoted significant resources in 2009 to continue implementing 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 Division also made significant efforts to assist insurance producers formerly known as Exclusive Representative Producers to transition to the new assigned risk residual market system and to obtain voluntary contracts with insurers.
Report of Efforts Made to Facilitate the Transition of Exclusive Representative Producers to Voluntary Agents
In accordance with Section 3 of Chapter Nine of the Acts of 2009, An Act Relative to an Appeal of Insurance Premium Surcharges under Managed Competition, the Commissioner filed a report with the Joint Committee on Financial Services in July regarding her efforts to facilitate the transition of Exclusive Representative Producers (ERPs) to voluntary agents and the outcome of those efforts. The report also provided information on insurance premium payment plans and requisite down payments in the voluntary and residual private passenger automobile insurance markets. Division attorneys spent significant time drafting this report which set forth the extensive efforts expended by the Division to facilitate the issuance of voluntary contracts to former ERPs. These efforts included appointing a Division ombusperson to field former ERP communications and concerns; holding multiple meetings with former ERPs to discuss their concerns; working with CAR staff to remedy outstanding issues through changes to MAIP rules and CAR's administrative procedures; and promulgating amendments to certain Division regulations.
The Division is optimistic that some of the remaining ERPs will obtain voluntary contracts or brokerage agreements with insurers. Even those who are unable to secure such contracts, however, will be able to continue their insurance businesses because they will be able to write policies through the MAIP. All customers of former ERPs therefore will continue to be able to obtain motor vehicle insurance.
In February, the Commissioner determined that the immediate adoption of certain amendments to MAIP Rules 22 and 29 was necessary for the fair and equitable operation of CAR and that observance of the normal requirements for promulgation of these rules would be contrary to the public interest. Specifically, the Commissioner amended the definition of "Member" in Rule 22 and amended the methodology by which insurers determine MAIP assignments in Rule 29. These amendments, in part, resulted in certain insurers (those determined to be a "Newly Writing Company" under the MAIP Rules) not receiving assigned policies through the MAIP for two years after their entry in to the Massachusetts private passenger automobile insurance market. The Division held a public hearing on these emergency amendments and on May 1, 2010 issued a Decision and Order making the emergency amendments to MAIP Rules 22 and 29 permanent. This Decision and Order subsequently was appealed to the Superior Court by Arbella Mutual Insurance Company and the Massachusetts Association of Independent Insurance Agents (MAIA). On February 16, 2010, the Supreme Judicial Court ruled in favor of the Commissioner relative to this appeal. For more detailed information on this matter, see the Litigation section.
On June 5, 2009, Commonwealth Automobile Reinsurers (CAR), the administrator of the private passenger automobile insurance residual market, proposed certain amendments to MAIP Rules 21, 26, 29, 30 and 31. The Commissioner determined that these amendments should be approved in part and disapproved in part, and scheduled a public hearing for the portions of the proposed amendments that were not approved. The public hearing solely addressed the Commissioner's disapproval of CAR's proposed amendments to MAIP Rule 30.C.1.d relative to eliminating the sunset provision regarding an insurer's obligation to pay a commission to the producer of a policy initially written through the MAIP when the insurer subsequently writes that policy voluntarily. On September 10, 2009, the Commissioner issued an Order on Proposed Changes which declined to reverse her prior decision on MAIP Rule 30.C.1.d.
On November 18, 2009, CAR proposed amendments to certain portions of MAIP Rules 28 and 29. After review, on December 18, 2009, the Commissioner approved the proposed amendment to MAIP Rule 29F which eliminated the so-called "Household Rule." She also disapproved proposed amendments to Rule 28.C.1 relative to premium deposit requirements and Rule 29.E relative to credit factors for certain policies and remanded those rules back to CAR for revisions that address concerns set forth by the Division.
10.33 Hearings and Appeals
In 2009, the Division held public hearings on rate filings concerning statewide homeowner's insurance rates for the residual market (MPIUA or FAIR Plan), which was resolved by stipulation filed and accepted in January of 2010. The Division additionally held public hearings concerning:
- The overall condition of the Massachusetts market for Medicare Supplement insurance
- CAR's performance standards for the payment and handling of private passenger motor vehicle insurance claims
- An appeal of an insured of the MPIUA
- Two employer appeals related to workers' compensation premiums
The Division also held a hearing, at the request of the Office of the Attorney General, on an insurer's competitive private passenger motor vehicle rate filing. This matter was resolved by stipulation and the filing ultimately was approved by the Commissioner. The Division provided a written public comment period for proposed changes to the Experience Review Plan submitted by Medical Professional Mutual Insurance Company (ProMutual) and also rendered a written Decision and Order finding the fees paid by a dental service corporation to its participating dentists to be unreasonable and ordering the submission of a new methodology.
Division attorneys assisted in the review of the proposed merger of two Massachusetts domestic life insurers with and into a foreign life insurer and a hearing was held on the same. Division enforcement counsel instituted 19 administrative actions against Division licensees and defended five 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 upmost 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 marshals 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.
In June of 2009, the Division filed an Order to Show Cause against various individual and business entity insurance producers seeking license revocation and financial penalties based on certain alleged violations of insurance laws. See Division v. HMA MGU, LLC et al, Docket No. E2009-16. In July of 2009, the respondents in the administrative proceeding filed a complaint for declaratory judgment and injunctive relief against the Commissioner which sought to enjoin the Division's pursuit of certain portions of its Order to Show Cause based on alleged Employee Retirement Income Security Act of 1974 (ERISA) preemption grounds. See Mark Allan Celentano et al v. Nonnie Burnes, in her official capacity as Commissioner of the Massachusetts Division of Insurance, Civil Action No. 09-11112-DPW. The Division responded by filing a Motion to Dismiss on Ground of Younger Abstention. In December of 2009, the Department of Labor and the Self-Insurance Institute of America submitted amicus curie briefs into the record of the proceeding. On February 2, 2010, the Court issued a Memorandum and Order granting the Division's motion to dismiss and dismissing the action in its entirety. The Division's original administrative proceeding remains pending.
Arbella Mutual Insurance Company and the Massachusetts Association of Insurance Agents (MAIA) filed a Complaint for Declaratory Relief and Appeal from the Decision and Order of the Commissioner with the Superior Court in June of 2009, which appealed a May 2009 decision of the Commissioner related to the implementation of certain rules of the Massachusetts private passenger automobile insurance residual market (MAIP). Generally, the plaintiffs alleged that the Commissioner exceeded her statutory authority by promulgating MAIP rules that would:
- Exempt non-domestic insurance companies from participating in the residual market for the first two years after their entry into the market
- Compel domestic insurance companies to be subject to a so-called "take-all-comers" market in the voluntary and residual markets to which new entrants will not be subject
- Deprive consumers of their right to the lowest possible premium charges in the residual market
- Deprive insurance producers of fair and reasonable commissions and of their ownership rights in certain customer information, both as of April 1, 2011
The Superior Court reported the case without decision and the Supreme Judicial Court (SJC) granted the plaintiffs' application for direct appellate review. Oral arguments were held on October 8, 2009. In a unanimous decision issued on February 16, 2010, the SJC upheld the Commissioner's broad authority over the MAIP and over certain issues relative to agent commissions. The SJC remanded the case to the Superior Court for judgment to be entered in favor of the Commissioner.
10.36 Other Activities
Public Records Requests
The Legal Division responded to a total of approximately 100 written public records requests in 2009. In addition, attorneys handled an average of two to three 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 from other Division departments increased in 2009.
1033 Committee Reviews
Additionally, 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 2009, the 1033 Committee received one complete application for written consent to engage or participate in the business of insurance as an unlicensed employee, as opposed to an insurance licensee. The Commissioner granted written consent to this applicant.
10.4 Special Investigations & Enforcement
The Special Investigations Unit investigates allegations of misconduct by 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.
|•||Thoroughly investigate cases 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.|
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 financial penalties.
Make referrals to federal and state government agencies, as well other regulatory bodies, and report evidence of criminal activity to the appropriate law enforcement authorities.
For calendar year 2009, Special Investigations and Enforcement closed 462 cases resulting in the suspension or revocation of 50 individual insurance licenses, and the assessment of $201,125 in financial penalties, $70,610 in restitution and $1,190 in collected surplus lines fees. 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
- Insurers failing to timely renew insurance producer appointments
The Special Investigations Unit reports enforcement actions online to the NAIC's Regulatory Information Retrieval System (RIRS). 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.