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R. A. FREUDIG ASSOCIATES v. COMMONWEALTH PENNSYLVANIA (10/19/87)

decided: October 19, 1987.

R. A. FREUDIG ASSOCIATES, PETITIONER
v.
COMMONWEALTH OF PENNSYLVANIA, INSURANCE DEPARTMENT, RESPONDENT



Appeal from the Order of the Insurance Commissioner of the Commonwealth of Pennsylvania, in case of In Re: R. A. Freudig Associates, Docket No. P86-7-20.

COUNSEL

Michael A. Dillon, with him, William R. Balaban, for petitioner.

Jean M. Callihan, Assistant Counsel, with her, Linda J. Wells, Chief Counsel, for respondent.

James J. Kutz, Shearer, Mette, Evans and Woodside, for intervenor, Maryland Casualty Company.

Judges Barry, and Colins, and Senior Judge Barbieri, sitting as a panel of three. Opinion by Senior Judge Barbieri.

Author: Barbieri

[ 110 Pa. Commw. Page 312]

This is an appeal by R. A. Freudig Associates, Petitioner, from an adjudication of the Pennsylvania Insurance Department (Department) upholding Maryland Casualty Company's (Maryland) termination of its agency

[ 110 Pa. Commw. Page 313]

    agreement, and of the Department's order denying reconsideration of that order. Freudig argues that Maryland's termination of its agency agreement violates the provisions of the Act of September 22, 1978 (Act 143), P.L. 763, as amended, 40 P.S. §§ 241-246, and that the Department's administrative hearing did not comply with the procedural requirements of the Administrative Agency Law, 2 Pa. C.S. §§ 501-508. We shall affirm.

The following factual recitation is pertinent. Freudig and Maryland are authorized to transact the business of automobile insurance in this Commonwealth. Freudig had an agency agreement with Maryland that had been in existence for more than five years, bringing the termination of that agreement under the provisions of Act 143. In August, 1984, Maryland undertook a comprehensive review of all its agencies to determine whether any were to be placed in rehabilitation. The factors considered by Maryland included the agency's loss ratio, a continuing pattern or history of unsatisfactory losses, the best method of eliminating losses, the agency's payment history, and the agency's ability to conform with Maryland's immediate and future needs. As a result of that review, Maryland placed forty agencies, including Freudig, on rehabilitation plans in an attempt to increase productivity and profitability. Freudig was informed of Maryland's decision to place it in rehabilitation status and the terms and conditions of the rehabilitation plan on August 29, 1984. Freudig received written confirmation of the August 29, 1984, telephone conversation, on September 4, 1984. Freudig was under a twelve month rehabilitation plan due to its severe loss ratio over the previous three and one-half years. In late February, 1985, an agent licensed with Maryland by another agency became employed with Freudig and attempted to have her license transferred to Freudig but was not permitted to do so. Maryland did later issue

[ 110 Pa. Commw. Page 314]

    this agent a license. In March, 1985, Maryland's Resident Manager informed Freudig that its premium volume fell below the minimum amount discussed in the rehabilitation plan and that termination appeared in order. At Freudig's request, a meeting between Freudig and Maryland was held on June 7, 1985, as a result of which, Maryland altered the rehabilitation plan. The new terms of the rehabilitation plan were memorialized in a letter sent by Maryland to Freudig on June 10, 1985. Following revision of the rehabilitation plan, Maryland did provide assistance to Freudig and conducted several meetings and discussions with Freudig during the rehabilitation period. On March 6, 1986, Maryland notified Freudig that its agency agreement would be terminated as of May 17, 1986, since it failed to meet the goals of the rehabilitation plan. The Department ordered Maryland to reinstate the agency agreement as the termination date was not ninety days beyond the notification date as required by Section 2(a) of Act 143, 40 P.S. § 242(a). Thereafter, on July 1, 1986, Maryland again notified Freudig that its agency agreement would be terminated as of November 1, 1986, for failing to comply with the rehabilitation plan. Freudig requested administrative review by the Department under Section 2(d) of Act 143, 40 P.S. § 242(d), and a formal hearing was held by the Department. Following that hearing, the Department issued an order and adjudication dated December 20, 1986, upholding Maryland's termination of Freudig's agency agreement. On January 12, 1987, the Department denied Freudig's request for reconsideration of its December 20, 1986, order and adjudication. This appeal followed.

Before this Court, Freudig argues that (1) the Department violated the procedural provisions of the Administrative Agency Law, 2 Pa. C.S. §§ 501-508, and its own ...


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