Insurance commissioner sued

Plaintiffs say rules favor newcomers

Arbella and a trade group say Burnes violated state law.

One of the state's largest auto insurance companies and the insurance agent trade association yesterday filed a lawsuit against Nonnie S. Burnes, the insurance commissioner, saying that new rules she put in place last month give newcomers to the Massachusetts auto market an unfair advantage.

The suit, filed yesterday afternoon in Suffolk Superior Court, says rules approved by Burnes on May 6 violate state law. It alleges they enable "foreign" insurance companies - those from other states that are new to the Massachusetts auto insurance market - to avoid writing policies for the highest-risk motorists for two years. At the same time, companies already doing business in the state must still write such policies, usually at a loss.

Under the "managed competition" system put in place by Burnes April 1, companies have greater freedom to set prices and create innovative insurance products. Previously, regulators set prices for all insurers.

The added expense of having to cover undesirable drivers adds as much as $150 a year to some policies for drivers with good records, said John Donohue, chief executive of Arbella Insurance Group of Quincy.

"We're not trying to stop managed competition," said Donohue. "We're doing quite well under it and selling more auto and homeowner policies than we did at the same time last year. But we don't see why companies new to Massachusetts should get a competitive advantage over us just because they are new, while we're being punished just because we already do business in Massachusetts."

Arbella is the third-largest writer of auto insurance in Massachusetts, with about 9.4 percent of the market, behind Commerce Insurance Co. and Safety Insurance.

A spokeswoman for Burnes declined to comment on the lawsuit, saying the division had not yet read it.

Burnes, a former judge, undertook a radical overhaul of the state's auto insurance market last spring, shortly after she was appointed by Governor Deval L. Patrick. Massachusetts was only state in the country to set rates.

Some companies that already sold auto insurance in Massachusetts fought the effort.

Separately, Burnes sparred with Attorney General Martha Coakley. The attorney general's office played a central role in annual rate-setting hearings. Last winter, Coakley tried to investigate insurance company rate filings and slow down the implementation of the new rates for some insurers.

But Burnes blocked most of her efforts, and it became clear during hearings that Coakley's role in auto insurance regulation is greatly diminished under managed competition.

Still, the attorney general would represent Burnes if the lawsuit proceeds.

Independent insurance agents, who sell most auto insurance policies in Massachusetts, are also unhappy with Burnes's May 6 rules.

They claim one of the regulations makes it possible for agents to lose their exclusive claim on some business, and with it, the commissions. That change goes into effect in April 2011.

"It's unfair to allow companies to simply ignore agent ownership rights and deprive them of future commissions," said Frank Mancini, chief executive of the Massachusetts Association of Insurance Agents, which is joining Arbella in the suit.

The issues at the heart of the action reignited resentments between auto insurers who supported deregulation and those that fought the changes.

"It's become transparent to me whose interests Arbella and the agents are trying to protect," said James T. Harrington, executive director of Massachusetts Insurance Federation Inc., a lobbying group that has supported Burnes's reform efforts.

"They've said they're interested in helping consumers and Massachusetts motorists, but clearly that is not the case. Their interest is simply in protecting themselves."

The suit asks the court to change the rules, but does not seek an injunction that might temporarily halt insurance sales or otherwise disrupt the continued implementation of the competitive system.

Jeffrey Krasner can be reached at krasner@globe.com.