Mass. Supreme Court Upholds Auto Assigned Risk Plan

August 23, 2006

The Massachusetts Supreme Judicial Court has unanimously ruled that the state insurance commissioner has the authority to create an assigned risk plan to replace the existing reinsurance plan for insuring high-risk drivers.

Insurance Commissioner Julianne Bowler ordered that current Commonwealth Auto Reinsurers plan, which is based on a hybrid reinsurance model, be phased out by January 1, 2008, and replaced by an assigned risk plan.

The move meant a switch from a high risk system under which agents are assigned to insurance companies to one in which individual high risk drivers are assigned to insurers.

Bowler said she backed the ARP system in part because it resembles the residual market systems in 42 other states.

Several domestic auto insurers, including Commerce Insurance and Arbella Mutual Insurance Company, along with the Center for Insurance Research, and others had argued that she lacked the statutory authority to make such a switch.

A judge in the Superior Court stayed implementation of the new plan pending trial and thereafter a second judge in the Superior Court ordered judgment for Commerce and the other plaintiffs, and annulled the decision of the commissioner. That judge concluded that creation of an assigned risk plan is contrary to the plain language of G.L. c. 175, § 113H, and its underlying spirit and purpose, and that the commissioner did not have the statutory authority to promulgate such a plan.

Bowler appealed that decision and the state’s highest court has now reversed the Superior Court. She was supported by the American Insurance Association, the Massachusetts Federation of Insurers and other parties.

The Aug. 23 decision written by Justice Francis X. Spina affirmed the Massachusetts Automobile Insurance Plan as promulgated by Bowler in December 2004, except for the provision providing that a so-called “clean in three” driver shall not be placed in the assigned risk pool. Such a driver, if rejected in the voluntary market, may be unable to obtain insurance as a result of the “clean in three” rule. That aspect of the plan was remanded to the commissioner for further proceedings.

The commissioner argued that the plain language of the law contains a broad grant of authority that allows her to promulgate any plan that is rationally related to the plain statutory goals of providing “motor vehicle insurance to applicants who have been unable to obtain insurance through the method by which insurance is voluntarily made available,” and to provide “for the fair and equitable apportionment among insurance companies of premiums, losses or expenses, or any combination thereof” arising from such insurance.

But the plaintiffs contended that the plain meaning of the law prohibits the commissioner from promulgating an assigned risk plan, and mandates a hybrid reinsurance plan such as the CAR plan currently in use. They further argued that the statute must be construed in the context of its original enactment and amendments since 1953 as well as the long-standing administrative interpretation given the statute, which compel the conclusion that the statute prohibits an assigned risk plan. Finally, the plaintiffs argued that an assigned risk plan is inconsistent with other statutory provisions and underlying policies.

The Supreme Court sided with Bowler, noting that the statute “does not specify whether the plan shall be an assigned risk plan, a reinsurance facility, or a joint underwriting association, the principal models used to write insurance for the residual market in the United States. The goals of each of these models in the residual market context are to provide insurance to high-risk drivers who are unable to obtain insurance in the voluntary market, and to apportion net losses fairly among carriers. Each model accomplishes these goals in different ways.”

As for the plaintiffs’ history argument, the court dismissed it as well. “We conclude that the history of the amendments to § 113H (A) since 1953 do not compel the conclusion that a reinsurance facility is required under the 1983 amendment. If the history of the amendments is helpful to any party, it favors the view of the commissioner,” the court wrote.


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