Mass. Auto Insurer Hanover Sues Over High Risk ‘Conspiracy’

March 3, 2004

The lengths to which an auto insurer in Massachusetts may go to circumvent the state’s unique high risk pool has been brought to light by an unusual lawsuit filed by one insurer against one of its competitors.

Hanover Insurance Co, a unit of Allmerica, has upped the stakes in the battle over high risk business by suing for $20 million it says it has suffered in losses — plus damages — because of an alleged unfair scheme by a competitor to dump high risk auto policies in Massachusetts.

The suit is against Arbella Mutual Insurance Co, along with Rapo & Jensen Insurance Services and Insurance Management Associates Inc. and its owner, Paul V. Brennan, Jr.

The complaint alleges that the defendants cooperated in a civil conspiracy to force certain Arbella high risk agents (known as exclusive representative producers) to sell their agencies so that losses from their books of business would be transferred from Arbella to Hanover. Under the alleged scheme, Arbella pressured certain ERPs to sell their businesses to Rapo & Jenson, a Boston-area insurance agency, using the services of IMS and Brennan.

The suit has been brought under the state’s consumer protection and unfair business practices statute, Chapter 93A, which allows for treble damages.

Hanover, the state’s seventh largest auto writer with a 5.4 market share, alleges that in 2000 Arbella paid out about $1.4 million to Rapo & Jensen to in turn buy six agencies that Arbella had designated as “problematic.” Arbella has a 9.7 percent market share in the state, making it the third largest carrier for private passenger auto.

The purchases resulted in about 13,000 high loss policies being transferred from Arbella to Hanover, according to the complaint. Hanover says it has lost an estimated $20 million on these policies since it was forced to assume them under the rules of the state’s private passenger residual market, Commonwealth Auto Reinsurers (CAR). Hanover said it “continues to suffer” an estimated loss of $8 million a year on these risks alone.

In language reminiscent of a spy novel, the complaint outlines the alleged conspiracy to have the high risk policies transferred from Arbella: “Each of the defendants took affirmative actions to achieve this result. Arbella and its agents took assertive and coercive actions to force certain high-loss ERPs to sell to Rapo & Jensen. Arbella supplied $1,400,000 to finance the sales it had engineered. Brennan and Insurance Management contacted targeted ERPs and attempted to induce and, in some cases, actually did induce, them to sell by brokering sales to Rapo & Jensen. In these agreements Brennan and Insurance Management misrepresented their interests and purposes to further the common plan of the defendants by not disclosing that he and his company were agents of Arbella. Rapo & Jensen joined with the other defendants in the common scheme and allowed the other defendants to use Rapo & Jensen’s contract with Hanover as a means for Arbella to force sales of its high-loss business.”

The suit was filed in the Superior Court on Jan. 28. Hanover has been battling over this issue with CAR and the Division of Insurance administratively and in the courts for years before resorting to this latest lawsuit.

Defendants were not immediately available for comment. Insurance Journal will report further on this case.

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