Massachusetts Insolvency Fund, Cancellation, Misrepresentation and Appraisal
This chapter covers the Massachusetts laws that apply across property and casualty insurance: the Massachusetts Insurers Insolvency Fund, how an insurer cancels a policy and returns the premium, concealment, misrepresentation and fraud, and appraisal of a disputed loss. The chapter on Massachusetts State Regulations covers producer licensing and unfair trade practices in general, and the next chapter covers special brokers and surplus lines, public insurance adjusters and portable electronics insurance.
Massachusetts laws, regulations, and required provisions
Massachusetts Insurers Insolvency Fund (Mass. Gen. Laws ch. 175D)
Massachusetts’s property and casualty guaranty association is the Massachusetts Insurers Insolvency Fund. Chapter 175D was rewritten by St. 2024, c. 389 (approved January 9, 2025), and the rules below are the current text.
Who belongs. A member insurer is any insurer that writes a kind of insurance the chapter applies to and is licensed to transact insurance in Massachusetts (Mass. Gen. Laws ch. 175D, § 1). The Fund is paid for by assessments on members in proportion to their net direct written premiums for the preceding calendar year; no member may be assessed more than 2 per cent of those premiums in any one year, apart from an administrative assessment of up to $1,000 a year (§ 5(c)(1)).
What it covers. The chapter applies to all kinds of direct insurance, including cybersecurity insurance, but not to life, annuity, health, accident or disability insurance; mortgage guaranty, financial guaranty or other insurance against investment risks; fidelity or surety bonds; credit insurance and similar creditor coverage; warranties or service contracts; title insurance; ocean marine insurance; transactions that transfer investment or credit risk without insurance risk; or insurance provided or guaranteed by the government (§ 2).
The Fund pays covered claims. A covered claim is an unpaid claim, including a claim for unearned premiums, that arises under and within the limits of a covered policy issued by a member insurer that becomes insolvent after July 1, 2025, where either the claimant or insured was a Massachusetts resident at the time of the insured event (for a business, its residence or principal place of business), or the claim is a first-party claim for damage to property permanently located in Massachusetts (§ 1).
A claim qualifies if it existed before the order of liquidation, or arises within 30 days after the order (or before the policy expires, if that comes sooner), or before the insured replaces or cancels the policy, if the insured does so within 30 days of the order (§ 5(a)(1)).
How much it pays (§ 5(a)). The unearned premium, other-claim and property limits apply to liquidations commencing on or after January 1, 2023:
| Claim | Most the Fund pays |
|---|---|
| Workers’ compensation benefits | The full amount |
| Return of unearned premium | $50,000 per policy |
| All other covered claims | $500,000 per claimant |
| All first-party property loss claims from a single occurrence under a policy covering commercial or residential property | $1,000,000 |
| All first- and third-party claims from a single insured event under cybersecurity insurance | $500,000, however many claims or claimants |
The Fund never pays a claimant more than the insolvent insurer owed under the policy (§ 5(a)(3)).
What it does not pay. A covered claim does not include punitive or exemplary damages, a return of premium under a retrospective rating plan, amounts owed to reinsurers, insurers, pools and similar bodies as subrogation or contribution, first-party claims by an affiliate of the insolvent insurer, fees of attorneys and other providers retained before the insolvency or retained to press a claim against the Fund, interest, or protection for incurred-but-not-reported losses (§ 1). The Fund also does not pay first-party claims by a high net worth insured: one whose net worth, counted with its subsidiaries and affiliates, exceeds $25,000,000 on December 31 of the year before the insurer becomes insolvent. Government entities are never high net worth insureds (§§ 1, 12(a)). Nor does the Fund have to pay third-party claims under a high net worth insured’s policy, unless the insured is in receivership, bankruptcy or a similar insolvency proceeding (§ 12(b)(1)).
Other insurance comes first. A claimant must first exhaust all coverage under any other policy that covers the same facts, injury or loss, including the right to a defense, whether or not a member insurer wrote that policy. No one has to exhaust a right under another insolvent member insurer’s policy or under a life insurance policy (§ 11(a)).
No advertising. No person may make, publish or circulate any statement that uses the existence of the Fund to sell, solicit or induce the purchase of insurance the Fund covers (§ 20).
A policy placed with an unauthorized company through a special broker is not protected by the Fund (Mass. Gen. Laws ch. 175, § 168(c); the next chapter covers surplus lines).
Cancellation and nonrenewal (Mass. Gen. Laws ch. 175, §§ 187B–187D)
Sections 187C and 187D set how a policy is cancelled, for any policy the company may cancel. The notice period and the grounds come from the policy and from line-specific statutes: for the standard fire policy and dwelling nonrenewals, see the chapter on Massachusetts property insurance; for auto, the chapter on Massachusetts motor vehicle insurance.
How the company cancels (§ 187C). The company serves the notice the policy provides and pays or tenders the full return premium due, without deductions, except as § 187D provides and except that no tender is required when the policy provides for paying the return premium when ascertained or on demand after cancellation. The notice may be:
- Delivered in hand to the named insured
- Left at the insured’s last address in the company’s records
- Sent to that address by first class mail
A mailed notice is not effective unless the company obtains a certificate of mailing receipt from the U.S. Postal Service showing the insured’s name and address as stated in the policy. A company check is a sufficient tender. An affidavit by an authorized officer, agent or employee that the notice was served and the premium paid or tendered is prima facie evidence that the policy was cancelled; a knowingly and wilfully false affidavit is punishable by a fine of $100 to $1,000 or up to one year in prison (§ 187C).
If the policy is payable to a mortgagee or anyone else, the notice must also go to that payee. An insured cancels by serving notice on the company or on the agent who issued the policy. These rules do not prevent ending a policy by mutual consent (§ 187C).
Nonpayment (§ 187D). If the insured has not actually paid the premium (to the company, its agent or the broker) before the date of the notice, the company may cancel in the § 187C manner without returning any premium.
Return premiums (§ 187B). A company, officer, agent or employee who knows the premium was paid and cancels without tendering the full return premium, or refuses to pay it on demand, is punished by a fine of $50 to $200 for a first offense, and $100 to $500 plus up to six months in prison for each later offense. An agent may offset a return premium due an insured against unpaid premium the same insured owes on another policy with the same insurer.
Concealment, misrepresentation, or fraud (Mass. Gen. Laws ch. 175, §§ 99, 170, 186; ch. 266, § 27A)
Statements in the application (ch. 175, § 186(a)). A misrepresentation or warranty made by or for the insured in negotiating any policy does not void it unless it was made with actual intent to deceive, or the matter misrepresented increased the risk of loss. Either one is enough.
The fire policy’s fraud clause (ch. 175, § 99). The Massachusetts standard fire policy has its own clause, which reaches conduct after a loss as well as before it. The entire policy is void if, before or after a loss, the insured has wilfully concealed or misrepresented any material fact or circumstance about the insurance, the property or the insured’s interest in it, or in case of any fraud or false swearing by the insured relating to it.
For example, an insured who knowingly inflates the value of destroyed furniture in a sworn proof of loss has engaged in false swearing after the loss, and the whole fire policy is void, not just the furniture claim.
Producers (ch. 175, § 170). An agent or broker who knowingly procures a premium by fraudulent representations is punished by a fine of $100 to $1,000 or up to one year in prison.
Hiding an insured vehicle (ch. 266, § 27A). Removing or concealing a motor vehicle or trailer that is insured against theft, with intent to defraud the insurer, or aiding or abetting it, is punishable by up to five years in state prison or one to two and one-half years in jail, and a fine of $500 to $5,000. The court must also order restitution to the insurer, in addition to and not instead of the fine or imprisonment. False insurance claims in general are covered elsewhere in this course, with Massachusetts insurance fraud regulation.
Appraisal (Mass. Gen. Laws ch. 175, § 99)
The Massachusetts standard fire policy settles a dispute over the amount of a loss by a reference to three disinterested referees, the policy’s appraisal provision:
- The insurer and insured fail to agree on the amount of loss.
- Each side chooses one referee from three persons named by the other side.
- The two referees chosen select the third.
- A written award by a majority of the referees is conclusive and final on the amount of loss.
Unless the parties waive it, the reference is a condition precedent to any lawsuit to recover the loss. Neither party has to accept, as a referee, someone who has acted as a referee within the past four months (§ 99).
- The clause cannot be changed. A company’s riders may not add to or modify the standard form’s provisions on the reference of a loss to three referees, the mortgagee’s rights, cancellation or the limitation of suits (§ 99, clause Ninth).
- No waiver. No provision or forfeiture is waived by any requirement or proceeding of the company relating to appraisal (§ 99).
- Time to sue. If the loss was referred to referees within the policy’s two-year suit period, the insured always has at least 90 days after a valid award, or after the reference or award is expressly waived, to sue (§ 99).
Lesson summary
- The Massachusetts Insurers Insolvency Fund pays workers’ compensation claims in full, up to $50,000 per policy in unearned premium, $500,000 per claimant on other claims and $1,000,000 for first-party property claims from one occurrence. It excludes life, health, title, surety and ocean marine insurance, and using the Fund in advertising is prohibited.
- To cancel, an insurer serves the policy’s notice and tenders the full return premium. A mailed notice needs a certificate of mailing, a mortgagee must also be notified, and no return premium is due if the premium was never paid.
- A misrepresentation voids a policy only with intent to deceive or if it increased the risk of loss (§ 186). The fire policy is void for wilful concealment, misrepresentation, fraud or false swearing, before or after a loss (§ 99).
- A dispute over the amount of a fire loss goes to three referees, and a majority award is final. The reference must happen before a lawsuit, and a rider may not alter the clause.