Massachusetts Special Brokers, Surplus Lines, Public Adjusters and Portable Electronics
This chapter covers three Massachusetts licenses that belong to property and casualty insurance, and the market they serve: special brokers and the surplus lines placements they make with unauthorized companies, public insurance adjusters, and the portable electronics insurance license. The chapter on Massachusetts State Regulations covers the producer license itself, and the previous chapter covers the Massachusetts Insurers Insolvency Fund.
Types of licenses
Special brokers (Mass. Gen. Laws ch. 175, § 168)
A special insurance broker is licensed to place insurance on Massachusetts property or interests with an unauthorized company, an insurer that is not licensed in Massachusetts. The Commissioner may issue the license to any suitable person aged 18 or older. It may cover the kinds of insurance listed in § 47, except reinsurance (§ 47, clause Fifteenth), accident and health, workers’ compensation, compulsory motor vehicle liability (except coverage for transportation network vehicles and personal vehicle sharing) or life insurance (Mass. Gen. Laws ch. 175, § 168(b)).
- Application: a written application executed on oath. If the Commissioner is satisfied the applicant is trustworthy and competent, the license is issued, subject to suspension or revocation at the Commissioner’s pleasure (§ 168(b)(i)).
- Term: the license expires one year from the date it is issued. The Commissioner may renew it each year without requiring the detailed application information again (§ 168(b)(i)–(ii)).
- Entities: a special broker license may also be issued to an association, a partnership or a corporation, under the conditions of §§ 172A, 173 and 174 (§ 168(h)).
The rules a special broker follows when placing business are covered under Surplus lines, below.
Public insurance adjusters (Mass. Gen. Laws ch. 175, §§ 162, 172)
A public insurance adjuster represents the insured. Anyone (other than an attorney acting in the usual course of practice) who, for compensation, solicits an insured, or represents an insured in the assessment of damages, negotiation, settlement, appraisal or reference of a loss under a fire, homeowners, commercial multi-peril, business interruption, fidelity or crime, inland or ocean marine, or other property damage policy, is a public insurance adjuster (Mass. Gen. Laws ch. 175, § 162).
Licensing (Mass. Gen. Laws ch. 175, § 172).
| Requirement | Rule |
|---|---|
| Age | 21 or older |
| Experience | Two years performing services in adjusting property losses before an application may be filed |
| Examination | A written examination, which tests building construction techniques and materials as well as insurance principles and coverage |
| Application | Filed on oath, with two passport photographs taken within 60 days and a certified criminal background check |
| Residence | Massachusetts, or a state or country that lets Massachusetts residents act as adjusters there |
| Term | Three years; renewable for further three-year periods without another examination |
| Discipline | The Commissioner may revoke or suspend the license for cause, after a hearing |
A corporation formed only to act as a public adjuster may be licensed, but a majority of the officers and directors named in its license must have held individual licenses for three years (§ 172).
The contract with the insured (§ 172). A public adjuster’s contract must be in writing on a form approved by the Commissioner. The adjuster may not use a form until it has been on file with the Commissioner for 30 days, unless the Commissioner approves it sooner, and may not use it if the Commissioner disapproves it in that period.
- To be enforceable, the contract must be signed by a named insured on each policy covering the loss (or an authorized designee), and the adjuster must give the insured a copy.
- If the policy names a mortgagee, a mortgagee claiming under the policy is a beneficiary of the contract.
- The insured may cancel without recourse within 3 calendar days after receiving a copy of the contract. After that, the insured may still revoke it at any time, but the adjuster may assert a lien for the agreed percentage fee on proceeds secured through the adjuster’s efforts. The contract must print this notice in at least 10-point bold type, and the notice also tells the insured that one who cancels remains liable for reasonable and necessary emergency out-of-pocket expenses or services the adjuster paid for or incurred during the 3 days to protect the insured’s interests.
Acting as a public insurance adjuster without a license, during a suspension or in violation of § 172 is punishable by a fine of up to $10,000 or imprisonment for up to six months (§ 172).
Portable Electronics Insurance Limited Lines license (Mass. Gen. Laws ch. 175, § 162Y)
Portable electronics insurance covers the repair or replacement of portable electronics (portable devices, their accessories and related services) against causes such as theft, mechanical failure, malfunction or damage. It is not a service contract, a warranty policy, or a homeowners, renters, private passenger auto or commercial multi-peril policy (Mass. Gen. Laws ch. 175, § 162Y(a)). It may be offered month to month or on another periodic basis as a group or master commercial inland marine policy issued to the vendor (§ 162Y(f)).
Who is licensed. A vendor (a person in the business of selling or leasing portable electronics, or services related to their use) must hold a portable electronics insurance license to sell or offer the coverage. That one license authorizes the vendor’s employees and authorized representatives to offer it at each of the vendor’s locations (§ 162Y(b)). The employees need no producer license of their own, as long as the insurer, or a supervising entity the insurer appoints, supervises the program and trains them, and no employee holds himself out as having a portable electronics insurance license (§ 162Y(h)).
Disclosures. Written materials must be available at every location stating that (§ 162Y(e)):
- The coverage may duplicate coverage the customer already has under a homeowners or renters policy
- Enrolling is not required to buy or lease the device or service
- The material terms, including the insurer, the supervising entity, any deductible and how it is paid, the benefits and key conditions, and how to file a claim
- An enrolled customer may cancel at any time and receive a refund or credit of any unearned premium
Billing. The vendor may bill and collect the charge. A charge not included in the price of the device must be separately itemized on the customer’s bill. Money collected is held in trust for the insurer. A vendor need not keep it in a segregated account if the insurer authorizes it to hold the funds another way and it remits them to the supervising entity within 60 days of receipt (§ 162Y(j)).
Termination of coverage. The insurer may terminate or change the policy only on at least 30 days’ notice. It may end one customer’s enrollment on 15 days’ notice for fraud or material misrepresentation, and immediately for nonpayment, when the customer no longer has active service with the vendor, or when the customer exhausts an aggregate limit (with notice sent within 30 days) (§ 162Y(l), (m)).
License term, fees and penalties. An initial license is valid for two years. The fee may not exceed $1,000 for the initial license and $500 for each renewal. After notice and a hearing, the Commissioner may fine a violating vendor up to $500 per violation or $5,000 in the aggregate, and may suspend its authority at particular locations or the authority of particular employees. Chapter 176D (unfair practices) applies to anyone in the business (§ 162Y(k), (p)–(r)).
Surplus lines: Definitions and markets (Mass. Gen. Laws ch. 175, §§ 168, 168A)
Section 168’s definitions do not use the term surplus lines. They speak of unauthorized insurance: any property and casualty insurance permitted to be placed with an eligible unauthorized company, meaning an insurer not licensed in Massachusetts. It is placed through a licensed special broker. An insured’s home state is the state of its principal place of business (for an individual, principal residence), or, if all of the risk is located elsewhere, the state to which the greatest share of the taxable premium is allocated (Mass. Gen. Laws ch. 175, § 168(a)).
The diligent effort affidavit (§ 168(b)(iii)). When a special broker places insurance with an unauthorized company for an insured whose home state is Massachusetts, the broker must, within 20 days, file an affidavit with the Commissioner stating that:
- The full amount of insurance needed is not procurable from admitted companies, after a diligent effort
- Only the excess over what admitted companies would write was placed with the unauthorized company
The affidavit is good for one year from the date of issuance or expiration of the policy, whichever is later. No new affidavit is needed if any special broker filed one for the same property or interests within the preceding 12 months (§ 168(c)). It is also not required for an exempt commercial risk or policyholder that acknowledges in writing that the company is not admitted and that the Massachusetts Insurers Insolvency Fund will not pay a loss if the company becomes insolvent (§ 168(b)(iv)).
The disclosure notice (§ 168(c)). Every policy placed this way must tell the policyholder that the company is not admitted in Massachusetts, is not supervised by the Commissioner, and that if it becomes insolvent a loss will not be paid by the Massachusetts Insurers Insolvency Fund.
Eligible markets (§§ 168(c), 168A). A special broker may place the insurance only with an unauthorized company that:
- Has net cash assets of at least $300,000, officers and directors of good repute, management carrying out its contracts in good faith, a home-state examination report completed within the previous 3 years, and a deposit of at least $400,000 with a state; or
- Files a financial statement and meets the financial requirements of § 20A; or
- Is an eligible alien unauthorized insurer: a non-U.S. company approved by the Commissioner, with capital and surplus of at least $20,000,000 and a U.S. trust fund of at least the greater of $5,400,000 or a percentage of its U.S. surplus lines liabilities (§ 168A)
The broker need not offer any of the insurance to a company with net cash assets under $200,000, or to one that has been impaired within the past 12 months (§ 168(c)).
Accounts and fee (§ 168(d)). A special broker keeps a separate account of the business placed under the license and files a certified copy with the Commissioner. By January 31 each year, the broker files a sworn statement of the previous year’s gross premiums and return premiums with the state treasurer and pays a fee of 4 per cent of gross premiums less return premiums for insureds whose home state is Massachusetts.
Penalty (§ 168(f)). A special broker who fails to file the required affidavit or statements, wilfully files a false one, or places business while the license is suspended or revoked forfeits the license and is punished by a fine of $100 to $500, up to one year in the house of correction, or both.
Lesson summary
- A special broker (age 18+, one-year license) places property and casualty insurance with unauthorized companies. Within 20 days the broker files a diligent effort affidavit that admitted companies would not write the full amount, pays a 4% fee by January 31 each year, and every such policy warns that the Insolvency Fund will not pay if the insurer fails.
- A public insurance adjuster represents the insured for pay. The license requires age 21, two years’ experience and an exam, and lasts three years. Contracts use a form on file 30 days, may be cancelled without recourse within 3 calendar days, and unlicensed adjusting carries up to $10,000 or six months.
- A portable electronics vendor holds one license (initially valid two years) covering its trained employees, must disclose possible duplication of coverage and that enrollment is optional, and may be fined up to $500 per violation or $5,000 in the aggregate.