HOUSE . . . . . . . No. 4772
The Commonwealth of Massachusetts
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HOUSE OF REPRESENTATIVES, June 18, 2024.
The committee on Ways and Means, to whom was referred the Bill to
modernize the Massachusetts insurer’s insolvency fund (House, No. 962),
reports recommending that the same ought to pass with an amendment
substituting therefor the accompanying bill (House, No. 4772).
For the committee,
AARON MICHLEWITZ.
 FILED ON: 6/18/2024
HOUSE . . . . . . . . . . . . . . . No. 4772
The Commonwealth of Massachusetts
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In the One Hundred and Ninety-Third General Court
(2023-2024)
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An Act to modernize the Massachusetts insurer’s insolvency fund.
Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority
of the same, as follows:
1 SECTION 1. Chapter 175D of the General Laws is hereby amended by striking out
2 sections 1 and 2 and inserting in place thereof the following 2 sections:-
3 Section 1. (a) As used in this chapter, the following words shall, unless the context
4 clearly requires otherwise, have the following meanings:
5 “Affiliate”, a person who directly or indirectly, through 1 or more intermediaries,
6 controls, is controlled by or is under common control with another person on December 31 of the
7 year immediately preceding the date a member insurer becomes an insolvent member insurer.
8 “Association similar to the Fund”, any guaranty association, security fund or other
9 insolvency mechanism that affords protection similar to that of the Fund, including, but not
10 limited to, any property and casualty insolvency mechanism that obtains assessments or other
11 contributions from insurers on a pre-insolvency basis.
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12 “Claimant”, any person instituting a covered claim; provided, that no person who is an
13 affiliate of the insolvent member insurer shall be a claimant.
14 “Commissioner”, the commissioner of insurance.
15 “Control”, the possession, direct or indirect, of the power to direct or cause the direction
16 of the management and policies of a person, whether through the ownership of voting securities,
17 by contract other than a commercial contract for goods or non-management services, or
18 otherwise, unless the power is the result of an official position with or corporate office held by
19 the person. Control shall be presumed to exist if a person, directly or indirectly, owns, controls,
20 holds with the power to vote or holds proxies representing, not less than 10 per cent of the voting
21 securities of any other person; provided, that this presumption may be rebutted by a showing that
22 control does not exist in fact.
23 “Covered claim”, an unpaid claim, including a claim for unearned premiums, submitted
24 by a claimant, which arises out of, and is within the coverage and is subject to the applicable
25 limits of, an insurance policy to which this chapter applies issued by a member insurer, if the
26 member insurer becomes an insolvent member insurer after July 1, 2025 and: (i) the claimant or
27 insured is a resident of the commonwealth at the time of the insured event; provided, that for
28 entities other than an individual, the residence or principal place of business of a claimant,
29 insured or policyholder shall be located in the commonwealth at the time of the insured event; or
30 (ii) the claim is a first-party claim for damage to property with a permanent location in the
31 commonwealth. Unless otherwise provided in this chapter, “covered claim” shall not include:
32 (A) any amount awarded as punitive or exemplary damages;
33 (B) any amount sought as a return of premium under any retrospective rating plan;
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34 (C) any amount due any reinsurer, insurer, insurance pool or underwriting association,
35 health maintenance organization, hospital plan corporation, professional health service
36 corporation or self-insurer as subrogation recoveries, reinsurance recoveries, contribution,
37 indemnification or otherwise; provided, that no claim for any amount due any reinsurer, insurer,
38 insurance pool, underwriting association, health maintenance organization, hospital plan
39 corporation, professional health service corporation or self-insurer shall be asserted against a
40 person insured under a policy issued by an insolvent member insurer other than to the extent the
41 claim exceeds the association obligation limitations set forth in section 5;
42 (D) any claims excluded pursuant to section 10 due to the high net worth of an insured;
43 (E) any first-party claims by an insured that is an affiliate of the insolvent member
44 insurer;
45 (F) any fee or other amount relating to goods or services sought by or on behalf of any
46 attorney or other provider of goods or services retained by the insolvent member insurer or an
47 insured prior to the date it was determined to be insolvent;
48 (G) any fee or other amount sought by or on behalf of any attorney or other provider of
49 goods or services retained by any insured or claimant in connection with the assertion or
50 prosecution of any claim, covered or otherwise, against the Fund;
51 (H) any claims for interest; or
52 (I) any claim filed with the Fund or a liquidator for protection afforded under the
53 insured’s policy for incurred-but-not-reported losses.
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54 “Cybersecurity insurance”, insurance that provides first- and third-party coverage, in a
55 policy or endorsement, written on a direct, admitted basis, providing indemnity for losses or loss
56 mitigation arising out of or relating to data privacy breaches, unauthorized information network
57 security intrusions, computer viruses, ransomware, cyber extortion, identity theft and similar
58 exposures.
59 “Director”, an individual serving on behalf of an insurer member of the board of directors
60 or an insurance producer representative on the board of directors.
61 “Fund”, the Massachusetts Insurers Insolvency Fund established by section 3.
62 “High net worth insured”, any insured whose net worth exceeds $25 million on
63 December 31 of the year prior to the year in which the insurer becomes an insolvent member
64 insurer; provided, that an insured’s net worth on that date shall be deemed to include the
65 aggregate net worth of the insured and all of its subsidiaries and affiliates as calculated on a
66 consolidated basis; and provided further, that high net worth insured shall not include a federal,
67 state or local government entity.
68 “Insolvent member insurer”, a member insurer against whom a final order of liquidation,
69 which has not been stayed and to which there is no further right of appeal, has been entered with
70 a finding of insolvency by a court of competent jurisdiction in the insurer’s state of domicile
71 after July 1, 2025.
72 “Insured”, any named insured, any additional insured, any vendor, lessor or any other
73 party identified as an insured under the policy.
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74 “Member insurer”, any person, except as provided in the ninth paragraph of section 6 of
75 chapter 362 of the acts of 1975, who: (i) writes any kind of insurance to which this chapter
76 applies, including the exchange of reciprocal or inter-insurance contracts; and (ii) is licensed to
77 transact insurance in the commonwealth. An insurer shall cease to be a member insurer in the
78 Fund effective on the day following the termination or expiration of its license to transact the
79 kinds of insurance to which this chapter applies; provided, however, that the insurer shall remain
80 liable as a member insurer for any and all obligations, including obligations for assessments
81 levied prior to the termination or expiration of the insurer’s license and assessments levied after
82 the termination or expiration, which relate to any insurer that became an insolvent member
83 insurer prior to the termination or expiration of the insurer’s license.
84 “Net direct written premiums”, direct gross premiums written in the commonwealth on
85 insurance policies to which this chapter applies, including policy and membership fees, less
86 return premiums thereon, and dividends paid or credited to policy holders on such direct
87 business. Premiums written by any insurer on policies issued to self-insurers, whether or not
88 designated reinsurance contracts, shall be deemed net direct written premiums. For workers’
89 compensation policies issued with deductibles under paragraph (4) of section 25A of chapter
90 152, net direct written premiums shall be deemed to be an amount equal to standard premium
91 plus any applicable all risk adjustment program amounts. Net direct written premiums shall not
92 include premiums on contracts between insurers or reinsurers.
93 “Novation”, a transaction whereby existing policy obligations became the direct
94 obligations of another insurer through consent of the policyholder and that thereafter the ceding
95 insurer or entity initially obligated under the claims or policies is released by the policyholder
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 96 from performing its claim or policy obligations. Consent may be express or implied based upon
97 the circumstances, notice provided and conduct of the parties.
98 “Person”, any individual, aggregation of individuals, corporation, partnership or other
99 legal entity, including, but not limited to, governmental entities.
100 “Receiver”, a liquidator, rehabilitator, conservator or ancillary receiver, as the context
101 requires, including, but not limited to, any receiver appointed pursuant to section 180C of
102 chapter 175.
103 “Self-insurer”, a person that covers its liability through a qualified individual or group
104 self-insurance program or any other formal program created for the specific purpose of covering
105 liabilities typically covered by insurance.
106 Section 2. This chapter shall apply to all kinds of direct insurance, including, but not
107 limited to, cybersecurity insurance. This chapter shall not apply to:
108 (i) life, annuity, health, accident or disability insurance;
109 (ii) mortgage guaranty, financial guaranty or other forms of insurance offering protection
110 against investment risks;
111 (iii) fidelity or surety bonds or any other bonding obligations;
112 (iv) credit insurance, vendors’ single interest insurance, collateral protection insurance or
113 any similar insurance protecting the interests of a creditor arising out of a creditor-debtor
114 transaction;
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115 (v) insurance of warranties or service contracts, including insurance that provides for the
116 repair, replacement or service of goods or property, indemnification for repair, replacement or
117 service for the operational or structural failure of the goods or property due to a defect in
118 materials, workmanship or normal wear and tear or that provides reimbursement for the liability
119 incurred by the issuer of agreements or service contracts that provide such benefits;
120 (vi) title insurance;
121 (vii) ocean marine insurance;
122 (viii) any transaction or combination of transactions between a person, including affiliates
123 of such person, and an insurer, including affiliates of such insurer, which involves the transfer of
124 investment or credit risk unaccompanied by transfer of insurance risk; or
125 (ix) any insurance provided by or guaranteed by the government.
126 SECTION 2. Section 3 of said chapter 175D, as appearing in the 2022 Official Edition, is
127 hereby amended by striking out the word “six” and inserting in place thereof the following
128 figure:- 7.
129 SECTION 3. Said chapter 175D is hereby further amended by striking out sections 4 to
130 17, inclusive, and inserting in place thereof the following 17 sections:-
131 Section 4. (a) The board of directors of the Fund shall consist of not less than 5 nor more
132 than 9 persons serving terms as established in the plan of operation pursuant to section 7. The
133 insurer members of the board shall be selected by member insurers subject to the approval of the
134 commissioner; provided, however, that 1 member of the board shall be appointed by the
135 commissioner as representative of the insurance producers. Vacancies on the board shall be filled
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136 for the remaining period of the term by a majority vote of the remaining insurer members subject
137 to the approval of the commissioner.
138 (b) In approving selections to the board, the commissioner shall consider whether all
139 member insurers are fairly represented.
140 (c) Members of the board of directors may be reimbursed from the assets of the Fund for
141 reasonable expenses incurred by them as members of the board of directors.
142 (d) Any director who is an insurer in receivership shall be terminated as a director,
143 effective as of the date of the entry of the order of receivership. Any resulting vacancies on the
144 board shall be filled for the remaining period of the term in accordance with the provisions of
145 subsection (a).
146 (e) A director shall be deemed unable to satisfactorily perform the designated functions
147 as a director by missing 3 consecutive board meetings, including, but not limited to, for illness,
148 nonattendance or any other reason, and the board of directors may declare the office vacant and
149 the director shall be replaced in accordance with subsection (a).
150 (f) If the commissioner has reasonable cause to believe that a director failed to disclose a
151 known conflict of interest with their duties on the board, failed to take appropriate action based
152 on a known conflict of interest with their duties on the board or has been indicted or charged
153 with a felony or a misdemeanor involving moral turpitude, the commissioner may suspend the
154 director pending the outcome of an investigation or hearing by the commissioner or the
155 conclusion of any criminal proceedings. A member insurer with a director elected to the board
156 may replace a suspended director representing the member insurer prior to the completion of an
157 investigation, hearing or criminal proceeding. In the event that the allegations are substantiated at
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158 the conclusion of an investigation, hearing or criminal proceeding, the position shall be declared
159 vacant and the member or director shall be replaced in accordance with subsection (a).
160 Section 5. (a)(1) The Fund shall be obligated to pay covered claims existing prior to an
161 order of liquidation of a member insurer, arising within 30 days after the order of liquidation, or
162 before the policy expiration date if less than 30 days after the order of liquidation, or before the
163 insured replaces the policy or causes its cancellation, if the insured does so within 30 days of the
164 order of liquidation. The obligation shall be satisfied by paying to the claimant an amount as
165 follows:
166 (i) the full amount of a covered claim for benefits under a workers’ compensation
167 insurance coverage;
168 (ii) for liquidations commencing after January 1, 2023, an amount not exceeding $50,000
169 per policy for a covered claim for the return of unearned premium;
170 (iii) for liquidations commencing after January 1, 2023, an amount not exceeding
171 $500,000 per claimant for all other covered claims; or
172 (iv) for liquidations commencing after January 1, 2023, an amount not exceeding
173 $1,000,000 for all first-party property loss claims arising from a single occurrence under a policy
174 covering commercial or residential property.
175 (2) In no event shall the Fund be obligated to pay an amount in excess of $500,000 for all
176 first- and third-party claims under a policy or endorsement providing or that is found to provide
177 cybersecurity insurance coverage and arising out of or related to a single insured event,
178 regardless of the number of claims made or the number of claimants.
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179 (3) In no event shall the Fund be obligated to pay a claimant an amount in excess of the
180 obligation of the insolvent member insurer under the policy or coverage from which the claim
181 arises. Notwithstanding any other provision of this chapter, for liquidations commencing after
182 January 1, 2023, a covered claim shall not include a claim filed with the Fund after the final date
183 set by the court for the filing of claims against the liquidator or receiver of an insolvent member
184 insurer.
185 (4) For the purpose of filing a claim under this section, notice of claims to the liquidator
186 of the insolvent member insurer shall be deemed notice to the Fund or its agent and a list of
187 claims shall be periodically submitted to the Fund or association similar to the Fund in another
188 state by the liquidator.
189 (5) Any obligation of the Fund to defend an insured shall cease upon the Fund’s payment
190 or tender of an amount equal to the lesser of the Fund’s covered claim obligation limit or the
191 applicable policy lim