Massachusetts Claims-Made Liability and Workers' Compensation Act
This chapter covers the Division of Insurance’s rules for claims-made commercial general liability policies and the Massachusetts Workers’ Compensation Act (chapter 152): who must be covered, which injuries count, the benefits and subrogation. The next chapter covers the other sources of workers’ compensation coverage and the liquor liability residual market.
Commercial general liability
Defense within limits versus open limits (Filing Guidance Notice 2011-A)
A liability policy can pay defense costs in addition to its limits (open limits) or within them, reducing what is left to pay the claim. The notice the outline cites for this topic, the Division’s Policy Filing Guidance 2011-A, does not address defense costs. It sets the rules for claims-made commercial general liability (CGL) policies, which are taught below.
Claims-made CGL is allowed, with conditions. Before Filing Guidance 2011-A, the Division accepted only CGL filings written on an occurrence basis. Under the notice, issued in July 2011, it accepts claims-made CGL filings that meet the notice’s requirements (Massachusetts Division of Insurance, Policy Filing Guidance 2011-A). Claims-made coverage covers injury or damage, including injury or damage before the policy’s effective date but after its retroactive date, arising only from incidents where the first notice of a claim is made during the policy period or an extended reporting period (Policy Filing Guidance 2011-A).
The requirements (Policy Filing Guidance 2011-A):
| Requirement | Rule |
|---|---|
| Retroactive date | The policy carries a mandatory endorsement specifying a retroactive date: the policy’s effective date or an agreed earlier date. Once set, the insurer may advance it only with the named insured’s written consent, after the named insured acknowledges in writing being told of the right to buy additional extended reporting coverage |
| Claims-made notice | The first page carries a prominent notice, in type at least the size of the policy captions, that the policy is written on a claims-made basis |
| Termination of coverage | Means cancellation or nonrenewal, and also any decrease in limits, reduction of coverage, increased deductible or self-insured retention, new exclusion or other change less favorable to the insured |
| Automatic extended reporting period | At least 30 days after termination of coverage; a claim first made in that period counts as made during the policy term |
| Additional extended reporting period | Available to buy at any time during the term and up to 15 days after termination, including termination for nonpayment. The insurer must offer one of at least three years, with an aggregate limit at least equal to the policy’s (or none if the policy has none) |
| Time to accept | The greater of 30 days from the termination date or 15 days from receiving the insurer’s offer, in writing |
| Insurer’s notices | Written notice of the automatic period, and of the availability, premium and importance of the additional period, no earlier than the termination date and no later than 15 days after it |
| Price | Based on the rates in effect when the policy was issued or last renewed, whichever is later |
For example, a contractor’s claims-made CGL policy is cancelled on May 1. A claim first made on May 20 for work done during the policy term is treated as made during the term, because it falls within the 30-day automatic extended reporting period. A claim first made in August falls outside the automatic period; additional extended reporting period coverage is what would reach it.
Workers’ compensation: Massachusetts Workers’ Compensation Act (Mass. Gen. Laws ch. 152)
Exclusive remedy (Mass. Gen. Laws ch. 152, §§ 24, 26, 71)
An employee who does not give the employer written notice at the time of hire that he or she keeps the common-law right of action is held to have waived the right to sue the employer for an injury compensable under chapter 152 (Mass. Gen. Laws ch. 152, § 24). If the hire came before the employer became insured or self-insured, the notice must be given within 30 days of that date. An employee who reserved the right may later give it up by written notice, effective five days after delivery (§ 24).
Without that notice, the employee’s spouse, children, parents and dependent family members are also held to have waived claims against the employer arising from the compensable injury, including loss of consortium and emotional distress (Mass. Gen. Laws ch. 152, § 24). A county, city, town or district that has accepted § 69’s compensation provisions is not liable in any action for a personal injury sustained by a laborer, workman or mechanic in the course of employment with it, except as § 72 provides (Mass. Gen. Laws ch. 152, §§ 69, 71).
Employment covered (required, voluntary) (Mass. Gen. Laws ch. 152, §§ 1, 25A)
Required. Every employer must provide for paying chapter 152 compensation in one of three ways: insurance with an insurer, membership in a workers’ compensation self-insurance group, or a self-insurer license from the department (Mass. Gen. Laws ch. 152, § 25A).
An employee is every person in the service of another under any contract of hire, express or implied, oral or written, with listed exceptions. Among the exceptions are commission-only real estate salespersons, certain direct sellers, certain leased-taxicab operators, and a person whose employment is not in the usual course of the employer’s business (Mass. Gen. Laws ch. 152, § 1(4)). An owner who lives in a dwelling of not more than three apartments, or an occupant of someone else’s dwelling, does not become an employer by hiring people for maintenance, construction or repair work on it, and nonprofits staffed exclusively by volunteers are not employers (§ 1(5)).
Elective. Coverage is elective for:
- Employers of seasonal or casual domestic servants, or of part-time domestic servants, meaning those working fewer than 16 hours a week (Mass. Gen. Laws ch. 152, § 1(4))
- A corporate officer or director who owns at least 25 percent of the corporation’s stock; the exemption applies only if the officer files a written waiver with the commissioner of industrial accidents (§ 1(4))
- A sole proprietor or partnership, which is an employee at its option and may elect coverage by buying insurance (§ 1(4))
Voluntary. Any employer may bring employees it is not required to cover within chapter 152 by providing for their compensation (Mass. Gen. Laws ch. 152, § 25B).
No coverage. An employer found without required coverage is served a stop work order effective immediately. The employer has 10 days to appeal, and the order is not in effect while a timely appeal is pending. It is lifted only when the employer shows coverage and pays a civil penalty of $100 a day, or $250 a day if the order is upheld after a hearing. The employer can also be fined up to $1,500, imprisoned up to one year, or both (Mass. Gen. Laws ch. 152, § 25C).
Covered injuries (Mass. Gen. Laws ch. 152, §§ 1, 26–29)
An employee who has not reserved the common-law right and receives a personal injury arising out of and in the course of employment, or from an ordinary risk of the street while doing the employer’s business with authorization, inside or outside Massachusetts, is paid compensation by the insurer or self-insurer (Mass. Gen. Laws ch. 152, § 26). Injury from frostbite, heat exhaustion or sunstroke in the course of employment (without voluntarily assumed extra peril), or from fellow employees’ physical activities the employee does not take part in, is conclusively presumed to arise out of the employment (§ 26).
- The employee’s misconduct. An employee injured by his or her own serious and wilful misconduct gets no compensation, but dependents are still paid if the injury causes death (Mass. Gen. Laws ch. 152, § 27).
- The employer’s misconduct. If the injury results from the employer’s (or a supervisor’s) serious and wilful misconduct, compensation is doubled, and an insured employer repays the insurer the extra amount. Knowingly employing a minor in violation of the child labor laws is serious and wilful misconduct (Mass. Gen. Laws ch. 152, § 28).
- Recreation. An injury from purely voluntary participation in a recreational activity (athletic events, parties, picnics) is not a personal injury, even if the employer pays for it (Mass. Gen. Laws ch. 152, § 1(7A)).
- Mental injury. A mental or emotional disability is a personal injury only where the predominant contributing cause is an event or series of events in the employment (§ 1(7A)). One arising principally from a bona fide personnel action (transfer, promotion, demotion or termination) is not, unless the action is the intentional infliction of emotional harm (§ 29).
Waiting period. No total or partial incapacity benefits are paid for an injury that does not keep the employee from earning full wages for five or more calendar days. If incapacity lasts 21 days or more, compensation is paid from the first day; if it lasts 5 to 20 days, from the sixth day (Mass. Gen. Laws ch. 152, § 29).
For example, an employee out of work for 10 days is paid from day 6. An employee out for 25 days is paid for all 25.
Occupational disease (Mass. Gen. Laws ch. 152, § 1(7A))
“Personal injury” includes infectious or contagious diseases where the hazard of contracting them is inherent in the employment (Mass. Gen. Laws ch. 152, § 1(7A)). When a compensable injury or disease combines with a non-compensable pre-existing condition, the result is compensable only to the extent the compensable injury remains a major but not necessarily predominant cause of the disability or need for treatment (§ 1(7A)).
Benefits provided (Mass. Gen. Laws ch. 152, §§ 27–36)
Weekly benefits are figured from the employee’s average weekly wage: earnings in the 12 calendar months before the injury, divided by 52; if the employee lost more than two weeks’ time in that period, the earnings are divided by the weeks remaining (Mass. Gen. Laws ch. 152, § 1(1)). The maximum and minimum weekly compensation rates are set from the average weekly wage in the commonwealth, a figure the state publishes by October 1 each year (§ 1(9)): the maximum weekly compensation rate is 100 percent of it and the minimum is 20 percent (§ 1(10), (11)).
| Benefit | What is paid | Section |
|---|---|---|
| Medical | Adequate and reasonable health care services and medicines, with necessary incidental expenses. After the first appointment (which a preferred provider arrangement may require to be in the plan), the employee may choose a treating professional and switch once. Employees pay no copayments or deductibles | § 30 |
| Temporary total incapacity | 60 percent of the average weekly wage, up to the maximum rate, for no more than 156 weeks. An employee whose average weekly wage is below the minimum rate receives the average weekly wage | § 34 |
| Partial incapacity | 60 percent of the difference between the pre-injury average weekly wage and what the employee can earn after the injury, but no more than 75 percent of the total-incapacity benefit, for no more than 260 weeks (extendable to 520 in the cases below) | § 35 |
| Permanent and total incapacity | After §§ 34 and 35 benefits, two-thirds of the average weekly wage, between the minimum and maximum rates | § 34A |
| Loss of function (specific injuries) | Paid in addition to other compensation, as the state average weekly wage times a set number of weeks, for example 39 for one eye or either leg, 43 for the major arm and 96 for both eyes, arms or legs; not paid if the employee dies from any cause within 30 days. Bodily disfigurement is paid up to $15,000, but purely scar-based disfigurement only if it is on the face, neck or hands | § 36 |
| Death | A surviving spouse who has not remarried receives two-thirds of the deceased’s average weekly wage, up to the state average weekly wage and not less than $110 a week, plus $6 a week for each qualifying child, but the child additions may not take the spouse above $150 a week. Total payments are capped at 250 times the state average weekly wage plus cost-of-living increases, but payments to children under 18 continue, and an unremarried spouse who has received the maximum keeps being paid while not fully self-supporting. Payments to the spouse end on remarriage | § 31 |
| Funeral | Reasonable burial expenses, up to 8 times the state average weekly wage | § 33 |
More rules on benefits:
- Combined limit. Total and partial benefits together may not exceed 364 weeks, or 520 weeks if the insurer agrees or a judge finds a permanent loss of 75 percent or more of certain bodily functions, a permanently life-threatening condition, or a permanently disabling occupational disease of a physical nature (Mass. Gen. Laws ch. 152, § 35).
- Dependents. $6 a week is added to total, permanent and total, or partial benefits for each person wholly dependent on the employee. The additions may not raise the employee’s weekly payment, combined with the benefit, above $150, and together they may not exceed the employee’s average weekly wage (Mass. Gen. Laws ch. 152, § 35A).
- Vocational rehabilitation. An employee who refuses to meet with the office of education and vocational rehabilitation gets no weekly benefits during the refusal, and an insurer may reduce benefits by 15 percent while an employee found suitable refuses rehabilitation services (Mass. Gen. Laws ch. 152, § 30G).
- Retirees. An employee at least 65 who has been out of the labor force at least two years and is eligible for Social Security old-age benefits or an employer-funded pension is not entitled to total or partial benefits unless he or she shows that, but for the injury, he or she would have stayed in the labor market (Mass. Gen. Laws ch. 152, § 35E).
For example, an employee earning an average of $1,000 a week is totally incapacitated. If $600 is no more than the maximum weekly compensation rate, the insurer pays $600 a week for up to 156 weeks. If the employee later returns at a job paying $600 a week, partial benefits are 60 percent of the $400 difference, or $240 a week.
Subsequent injury fund (Mass. Gen. Laws ch. 152, § 37)
When an employee with a known pre-existing physical impairment suffers a work injury that causes substantially greater disability because of the combination, the insurer pays all compensation. It is then reimbursed from the Workers’ Compensation Trust Fund for up to 75 percent of certain benefits, but nothing for the first 104 weeks (Mass. Gen. Laws ch. 152, § 37). There is no reimbursement unless the employer knew of the impairment within 30 days of hiring or retaining the employee, from a physical examination, an application questionnaire or the employee’s statement (§ 37).
Subrogation (Mass. Gen. Laws ch. 152, § 15)
When a third party is legally liable for the injury, the employee still receives workers’ compensation and does not have to choose between it and a lawsuit. Either the employee or the insurer may sue the third party, but the insurer only after paying compensation and not until seven months after the injury. The recovery goes to the insurer up to what it paid, and the excess goes to the employee (Mass. Gen. Laws ch. 152, § 15). A settlement with the third party, other than one reached during trial, needs approval by the board, the reviewing board or the court after a hearing at which both the employee and the insurer can be heard, and attorney’s fees are shared in proportion to what each receives (§ 15).
Lesson summary
- Filing Guidance 2011-A lets insurers file claims-made CGL policies with a retroactive date, a first-page claims-made notice, a 30-day automatic extended reporting period and an optional extended reporting period of at least three years. A cut in limits or a new exclusion counts as a termination of coverage. The notice does not address defense within limits.
- Workers’ compensation is the exclusive remedy unless the employee reserves common-law rights in writing at hire (ch. 152, § 24). Every employer must insure, join a self-insurance group or be licensed to self-insure (§ 25A); uninsured employers face a stop work order (§ 25C).
- Coverage is elective for part-time domestic workers (under 16 hours a week), 25 percent owner-officers who file a waiver, and sole proprietors and partners (§ 1(4)).
- No incapacity benefits unless the employee is out five or more days; paid from day 6, or from day 1 if out 21 days or more (§ 29).
- Total incapacity pays 60 percent of the average weekly wage for up to 156 weeks; partial pays 60 percent of the wage loss for up to 260 weeks; permanent and total pays two-thirds; burial up to 8 times the state average weekly wage (§§ 33–35).
- The insurer pays all compensation for a second injury and is reimbursed from the Workers’ Compensation Trust Fund for up to 75 percent of certain benefits, but not for payments in the first 104 weeks (§ 37). The insurer may sue a liable third party after seven months and keeps its recovery up to what it paid (§ 15).