§ 5 — Powers and duties of Fund

Massachusetts § 5

• Jurisdiction: Massachusetts
• Part I: ADMINISTRATION OF THE GOVERNMENT
• Title XXII: CORPORATIONS
• Ch. 175D: MASSACHUSETTS INSURERS INSOLVENCY FUND

Text

[ Text of section effective until April 9, 2025. For text effective April 9, 2025, see below.]Section 5. (1) The Fund shall:(a) be obligated to the extent of the covered claims against the insolvent insurer existing prior to the declaration of insolvency and arising within sixty days after the declaration of insolvency, or before the policy expiration date if less than sixty days after the declaration, or before the insured replaces the policy or requests cancellation, if he does so within sixty days of the declaration, but such obligation shall include only that amount of each covered claim which, unless it is a claim for compensation or other benefits which arises out of and is within the coverage of a workers' compensation policy, is less than three hundred thousand dollars.(b) be deemed the insurer to the extent of its obligation on the covered claims and shall have all rights, duties and obligations of the insolvent insurer to such extent;(c) assess insurers the amounts necessary to pay the obligations of the Fund and the expenses of handling covered claims subsequent to an insolvency and to pay the cost of examinations under paragraph (1) of section eight and other permissible expenses incurred under this chapter. The assessments of each insurer shall be in the proportion that the net direct written premiums of the insurer for the calendar year preceding the assessment bears to the net direct written premiums of all insurers for the calendar year preceding the assessment. Each insurer shall be notified of the assessment not later than thirty days before it is due. No insurer may be assessed in any year an amount greater than two per cent of that insurer's net direct written premiums for the calendar year preceding the assessment. If the maximum assessment, together with the other assets of the Fund, does not provide in any one year an amount sufficient to make all necessary payments, the funds available may be prorated and the unpaid portion shall be paid as soon thereafter as funds become available. The Fund shall pay claims in any order which it may deem reasonable, including the payment of claims as such are received from the claimants or in groups or categories of claims. The Fund may exempt or defer, in whole or in part, the assessment of any insurer, if the assessment would cause the insurer's financial statement to reflect amounts of capital or surplus less than the minimum amounts required for a certificate of authority by any jurisdiction in which the insurer is authorized to transact insurance, provided, however, that during the period of deferment, no dividends shall be paid to shareholders or policyholders. Deferred assessments shall be paid when such payment will not reduce capital or surplus below required minimums. Such payments shall be refunded to those companies receiving larger assessments by virtue of such deferment, or at the election of any such company, credited against future assessments. Each insurer serving as a servicing facility may set off against any assessment authorized payments made on covered claims and expenses incurred in the payment of such claims by such insurer;(d) investigate claims brought against the Fund and adjust, compromise, settle and pay covered claims to the extent of the Fund's obligation and shall deny all other claims;(e) notify such persons as the commissioner may direct;(f) handle claims through its employees or through one or more insurers designated as servicing facilities. Designation of an insurer as a servicing facility is subject to the approval of the commissioner and may be declined by the insurer; and(g) reimburse each servicing facility for obligations of the Fund paid by the facility and for expenses incurred by the facility while handling claims on behalf of the Fund and shall pay the other expenses of the Fund incurred under this chapter.(2) The Fund may:(a) appear in, defend, and appeal, any action on a claim brought against the Fund;(b) employ such personnel as are necessary to handle claims and perform other duties of the Fund;(c) borrow funds necessary to carry out the purposes of this chapter in accordance with the plan;(d) sue or be sued;(e) request that the commissioner order an examination of any insurer when a majority of the board of directors in good faith believes such insurer may be in a financial condition hazardous to the policyholders or the public;(f) make reports and recommendations to the commissioner upon any matter germane to the solvency, liquidation, rehabilitation or conservation of any insurer. Such reports and recommendations shall not be open to public inspection; and(g) make recommendations for the detection and prevention of insurer insolvencies.Chapter 175D: Section 5. Powers and duties of Fund[ Text of section as recodified by 2024, 389, Sec. 3 effective April 9, 2025. For text effective until April 9, 2025, see above.]Section 5. (a)(1) The Fund shall be obligated to pay covered claims: (i) existing prior to an order of liquidation of a member insurer; (ii) arising within 30 days after the order of liquidation or before the policy expiration date if such expiration occurs less than 30 days after the order of liquidation; or (iii) before the insured replaces the policy or causes its cancellation if the insured does so within 30 days of the order of liquidation. The obligation shall be satisfied by paying to the claimant an amount as follows:(i) the full amount of a covered claim for benefits under a workers' compensation insurance coverage;(ii) for liquidations commencing on or after January 1, 2023, an amount not exceeding $50,000 per policy for a covered claim for the return of unearned premiums;(iii) for liquidations commencing on or after January 1, 2023, an amount not exceeding $500,000 per claimant for all other covered claims; or(iv) for liquidations commencing on or after January 1, 2023, an amount not exceeding $1,000,000 for all first-party property loss claims arising from a single occurrence under a policy covering commercial or residential property.(2) In no event shall the Fund be obligated to pay an amount in excess of $500,000 for all first- and third-party claims under a policy or endorsement providing or that is found to provide cybersecurity insurance coverage and arising out of or related to a single insured event, regardless of the number of claims made or the number of claimants.(3) In no event shall the Fund be obligated to pay a claimant an amount in excess of the obligation of the insolvent member insurer under the policy or coverage from which the claim arises. Notwithstanding any other provision of this chapter, for liquidations commencing on or after January 1, 2023, a covered claim shall not include a claim filed with the Fund after the final date set by the court for the filing of claims against the liquidator or receiver of an insolvent member insurer.(4) For the purpose of filing a claim under this section, notice of claims to the liquidator of the insolvent member insurer shall be deemed notice to the Fund or its agent and a list of claims shall be periodically submitted to the Fund or association similar to the Fund in another state by the liquidator.(5) Any obligation of the Fund to defend an insured shall cease upon the Fund's payment or tender of an amount equal to the Fund's covered claim obligation limit or the applicable policy limit, whichever is lesser.(b) The Fund shall be deemed the insurer to the extent of its obligation on the covered claims and shall, to that extent subject to the limitations provided in this chapter have all rights, duties and policy obligations of the insolvent member insurer as if the insurer had not become insolvent, including, but not limited to, the right to pursue and retain salvage and subrogation recoverable on covered claim obligations to the extent paid by the Fund; provided, however, that the Fund shall not be deemed the insolvent member insurer for the purpose of conferring jurisdiction or for any reason not expressly stated in this chapter. The extent of the Fund's subrogation rights and any other rights of reimbursement with respect to its covered claims payments shall not be limited as if the Fund were the insolvent member insurer but shall be determined independently by taking into account the Fund's rights under section 11.(c)(1) The Fund shall assess insurers the amounts necessary to pay the obligations of the Fund under subsection (a) subsequent to an insolvency, expenses of handling covered claims subsequent to an insolvency and other expenses authorized by this chapter. The assessments of each member insurer shall be in the proportion that the net direct written premiums of the member insurer for the calendar year preceding the assessment bears to the net direct written premiums of all member insurers for the calendar year preceding the assessment. Each member insurer shall be notified of the assessment not later than 30 days before it is due. A member insurer may not be assessed in any 1 year on any account an amount greater than 2 per cent of that member insurer's net direct written premiums for the calendar year preceding the assessment. A member insurer may be also subject to an additional assessment, not to exceed $1,000 in any 1 year, determined by the board for the purpose of covering administrative and other expenses of the Fund. If the maximum assessment, together with the other assets of the Fund, does not provide in any 1 year an amount sufficient to make all necessary payments, the Fund's available assets shall be pro-rated and the unpaid portion shall be paid as soon thereafter as additional assets become available.(2) The Fund may exempt or defer, in whole or in part, the assessment of a member insurer, if the assessment would cause the member insurer's financial statement to reflect amounts of capital or surplus less than the minimum amounts required for a certificate of authority by a jurisdiction in which the member insurer is authorized to transact insurance; provided, however, that during the period of deferment, no dividends shall be paid to shareholders or policyholders. Deferred assessments shall be paid when the payment will not reduce capital or surplus below required minimums. Payments shall be refunded to those companies receiving larger assessments due to such deferment, or at the election of the member insurer, credited against future assessments.(d) The Fund shall investigate claims brought against the Fund and adjust, compromise, settle and pay covered claims to the extent of the Fund's obligation and deny all other claims; provided, however, that the Fund shall pay claims in any order that it may deem reasonable, including the payment of claims as they are received from the claimants or in groups or categories of claims. The Fund shall have the right to appoint, substitute and direct legal counsel for the defense of covered claims.(e) The Fund shall notify claimants in the commonwealth as deemed necessary by the commissioner and, upon the commissioner's request, to the extent records are available to the Fund.(f)(1) The Fund shall have the right to review and contest as set forth in this subsection settlements, releases, compromises, waivers and judgments to which the insolvent member insurer or its insureds were parties prior to the entry of the order of liquidation. In an action to enforce settlements, releases and judgments to which the insolvent member insurer or its insureds were parties prior to the entry of the order of liquidation, the Fund may assert the following defenses, in addition to the defenses available to the insurer:(i) the Fund shall not be bound by a settlement, release, compromise or waiver executed by an insured or the insurer or any judgment entered against an insured or the insurer by consent or through a failure to exhaust all appeals, if the settlement, release, compromise, waiver or judgment was: (A) executed or entered within 12 months prior to the entry of an order of liquidation; or (B) executed by or taken against an insured or the insurer based on default, fraud, collusion or the insurer's failure to defend;(ii) if a court of competent jurisdiction finds that the Fund is not bound by a settlement, release, compromise, waiver or judgment for any of the reasons described in clause (i) or any other legally sufficient reason, the settlement, release, compromise, waiver or judgment shall be set aside and the Fund may defend any covered claim on the merits; provided, however, that the settlement, release, compromise, waiver or judgment shall not be considered as evidence of liability or damages in connection with any claim brought against the Fund or any other party under this chapter; and(iii) the Fund shall have the right to assert any statutory defenses or rights of offset against any settlement, release, compromise or waiver executed by an insured or the insurer or any judgment taken against the insured or the insurer.(2) As to any covered claims arising from a judgment under any decision, verdict or finding based on the default of the insolvent member insurer or its failure to defend, the Fund may, either on its own behalf or on behalf of an insured, apply to have the judgment, order, decision, verdict or finding set aside by the same court or administrator that entered the judgment, order, decision, verdict or finding and such judgement shall be vacated and the Fund shall be permitted to defend the claim on the merits.(g) The Fund shall handle claims through its own employees, 1 or more insurers or other persons designated as servicing facilities, which may include the receiver for an insolvent member insurer. Designation of a servicing facility shall be subject to the approval of the commissioner, but such designation may be declined by a member insurer.(h) The Fund shall reimburse each servicing facility for obligations of the Fund paid by the servicing facility and for expenses incurred by the facility while handling claims on behalf of the Fund and shall pay the other expenses of the Fund authorized by this chapter.(i) The Fund shall, not later than 90 days after the end of the Fund's fiscal year, submit a financial report for the preceding fiscal year in a form approved by the commissioner.(j) The Fund may:(i) employ or retain persons as are necessary to handle claims, provide covered policy benefits and perform other duties of the Fund;(ii) borrow funds necessary to carry out the purposes of this chapter in accordance with the plan of operation; provided, however, that the board of directors shall have the authority to pledge all or an appropriate portion of future assessments as necessary to secure a loan that may be needed to pay covered claims; and provided further, that until all loans secured by any pledged assessments are fully satisfied, the board of directors shall assess the maximum allowable under subsection (c);(iii) sue or be sued, including, but not limited to, taking any legal action to collect unpaid assessments from member insurers, any amounts due for subrogation or salvage, other insurance recoveries, large deductible reimbursements or to recover any amount due from a high net worth policyholder; provided, however, that the Fund's power to sue shall include, but not be limited to, the power and right to intervene as a party to the proceedings before any court that has jurisdiction over an insolvent member insurer when the Fund is a creditor or potential creditor of the insolvent member insurer's estate;(iv) negotiate and become a party to contracts necessary to carry out the purpose of this chapter;(v) refund to the member insurers in proportion to the contribution of each member insurer that amount by which the assets of the Fund exceed the liabilities if, at the end of any calendar year, the board of directors finds that the assets of the Fund exceed the reasonable amounts the board determines are appropriate to assure that the Fund has sufficient capacity to fulfill its statutory duties; and(vi) perform other acts necessary or proper to carry out the purpose of this chapter.