Mass. high risk historical drama played out in court, on airwaves

While factions began airing noisy television commercials in hopes of influencing lawmakers considering auto insurance reforms, a quiet discussion on a piece of that reform took place inside the courtroom of the Massachusetts Supreme Judicial Court earlier this month.

Last year, Insurance Commis-sioner Julianne Bowler sought to jumpstart the reform effort by implementing an assigned risk plan for high risks, a method used in most other states to handle involuntary risks but one with a history of controversy in the Bay State dating back to 1973.

Nothing changes in the Massachusetts auto insurance system without a fight. Two top domestic insurers, Commerce and Arbella Mutual, led a coalition that included consumer groups in opposing the ARP. They won the first round last fall when Suffolk Superior Court Justice Ralph Gants halted Bowler’s plan. The commissioner’s appeal was heard in the Supreme Court on May 4.

This argument actually starts 1973, when the Legislature scrapped the state’s last ARP and replaced it with a reinsurance pooling mechanism. In 1983, the Legislature revised that statute to create the current hybrid plan for high risks known as Commonwealth Auto Reinsurers, or CAR.

As CAR has aged, so have problems, most notably its inequitable distribution among insurers of the producers with the highest loss ratios, a condition fostered through various CAR rules and financial incentives over the years. It is a system that appears to favor certain insurers while discouraging others from writing in the state.

Bowler and a number of insurers belonging to the Massachusetts Insurance Federation became convinced that transforming the CAR mechanism into an ARP was a necessary first step in reforming the entire system, Having an ARP would align the state more with other states, a goal of her boss, Gov. Mitt Romney, who has also argued for rating and subsidy reforms designed to attract more national insurers to write in the state.

The appeal before the Supreme Court did not address whether the ARP Bowler approved was a good idea but only whether she was within her authority to impose such a plan.

Bowler and her supporters argued that she was well within her broad statutory powers.

Commerce, Arbella and other opponents argued that Bowler’s order exceeded her authority because the Legislature intentionally prohibited an ARP as an option.

During the May 4 court hearing, the Supreme Court justices appeared interested in whether the current statute, as it evolved from 1973 and then was changed in 1983, prohibits the commissioner from moving to an ARP. Under an ARP high risk applicants are randomly assigned to insurers to write; in CAR, insurers share the losses and expenses of all high risks.

The justices first inquired whether there is legislation pending that might render the case moot within a short while. Thomas Barnico, of the Attorney General’s office, arguing on behalf of Bowler, acknowledged that the Romney legislation under consideration would clarify the authority of the commissioner to implement an ARP, but told the court that the legislation does not detail what a plan should entail.

Chief Justice Margaret Marshall seemed inclined to agree with Barnico that the state insurance commissioner has broad authority.

But the plaintiffs’ lawyers insisted that the Legislature intentionally eliminated an ARP as an option for the commissioner in 1973. Attorney Nelson Apjohn, of the firm Nutter McClennen & Fish LLP, represented lead plaintiff Commerce Insurance Co., and Roberta Fitzpatrick, a Boston attorney, represented plaintiff Arbella.

True, the Legislature banned an ARP in 1973 but then in 1983, it re-opened the door to an ARP when it removed the word “reinsurance” from the statute, according to Barnico.

Not so, Cambridge attorney Stephen J. D’Amato countered on behalf of the consumer group, Center for Insurance Research. The term reinsurance was taken out in 1983 to make the hybrid CAR possible but the statute retained its requirement that any system be a loss sharing system, not an applicant assignment system, according to plaintiffs.

Fitzpatrick further argued that the ARP is inconsistent with other statutes that define the state’s complicated auto insurance system, such as a law requiring all servicing carriers to “take all comers” and another prohibiting a so-called “dirty rate” for drivers in the assigned risk plan.