What You Need To Know About The Massachusetts Insurance Certificate Law

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2015 Statute Regulates Certificates of Insurance for the First Time in Massachusetts

Massachusetts regulates certificates of insurance under M.G.L. c. 175L. This statute tracks the 2012 Model Act of the National Council of Insurance Legislators. Enactment of the Model Act nationwide was a major insurance industry initiative following its drafting and approval by the National Council of Insurance Legislators.

Codifies certificate practices to avoid prior court decisions

The purpose of Chapter 175L is to make it statutorily clear that insurance certificates do not and cannot modify the terms or conditions of the underlying insurance policies they evidence. As to whether Chapter 175L will accomplish the goal of statutorily reversing court decisions, finding that insurance certificates created liability for insurance companies and insurance producers outside of the explicit terms of the underlying insurance remains to be seen.

An example of the problem this statute seeks to correct is found in Witkowski v. Richard W. Endlar Insurance Agency, the subject of one of the most read articles of Agency Checklist: Court Sinks Endlar Agency over Certificate of Insurance. In Endlar, the Appeals Court found that the insurance certificate issued by an agency that correctly identified the underlying policy and the coverages, in general, created a factual issue for trial as to negligent misrepresentation. The insurance certificate correctly described that the master condominium policy had flood insurance but, not surprisingly, did not identify that the master policy had an explicit exclusion for the particular condominium unit in question. The exclusion was based on prior flooding of this garden-style condominium located beside a river. When the new owner was flooded out, he learned that he had no coverage and sued the agent. The agent initially prevailed, but the Appeals Court reversed the decision, stating that the certificate could evidence a negligent misrepresentation based upon the particularity of the exclusion.

General Laws c. 175L likely has made such a claim unlikely to succeed today.

Certificate statute has specific rules for limiting certificate liability

A copy of c. 175L statute can be accessed below, but the terms of the statute in bullet point form are the following:

• A certificate of insurance encompasses any document or instrument evidencing property or casualty insurance coverage issued by an insurer or insurance producer;
• A certificate may not “amend, extend or alter the coverage afforded by the policy it evidences”;
• A certificate cannot create any new or additional rights outside the reference policy;
• The law bars anyone from knowingly preparing, issuing, requesting, or requiring any false or misleading information in the certificate;
• Likewise, the law prohibits anyone from preparing, issuing, requesting, or requiring a certificate that purports to affirmatively or negatively reference insurance outside the coverage provided by the underlying policy;
• A certificate cannot warrant that any insurance or indemnification requirements of a contract are fulfilled by the underlying policy of insurance.
• A cancellation notice reference on the certificate does not create any right to receive notice of cancellation, non-renewal or material changes to a policy unless the terms of the policy or endorsement so provides

Interpretation of the certificate law must await the courts

While the certificate law is very specific, the interpretation of these provisions will only become known as Courts rule on what the Legislature has written. Some of these interpretations may not result in what the drafters of this legislation may have intended.

For example, Massachusetts has a very broad business representation statute under General Laws, Chapter 93A §11. This statute allows suits for unfair and deceptive acts or practices in commerce or trade including insurance. Decisions under this statute oftentimes find liability based on broad rules of good faith and fair dealing independent of the letter of the law.

The certificate of insurance statute prohibits in § 3(a) anyone from knowingly preparing or issuing “…a certificate of insurance that contains any false or misleading information concerning the policy of insurance to which the certificate of insurance makes reference…”

Since a producer is most likely the persons preparing and issuing a certificate of insurance, if the producer somehow made an error regarding the insurance the certificate recipient would have no rights against the insurance company under the new statute. However, there may be no legal bar to the recipient of the certificate claiming against the producer for negligent misrepresentation.

Whether the courts would apply such negligent misrepresentation, based upon this argument, is an open question under the statute.

Other open questions for agent takeaways on the statute

C. 175L should work, in general, for a producer’s benefit in allowing them to explicitly counter any requests for additional references in a certificate of insurance that would contradict or extend coverage. Their answer simply has to be that such an act would be against the law.

However, producers representing the customary users of insurance certificates, such as contractors and subcontractors, should keep their clients advised that, at a minimum, these clients may want to have practices and procedures to verify the following:

1. Contractually requiring the production of copies of all insurance policies that are intended to comply with the insurance conditions of an underlying contract.
2. Establishing specific procedures that verify the terms of the policies they receive have the provisions relating to the coverage required by any underlying contract.
3. Establishing explicit checklists regarding all of the basic issues regarding the required policy conditions that comply with the contract.

In addition, one of the most important conditions under the statute that producers should advise their insureds about is the fact that the certificate of insurance provisions relating to cancellation, non-renewal, or material endorsements have no legal validity under the new statute.

The language in the present certificate of insurance does not necessarily create a contractual obligation relating to such notices, but the provision of M.G.L. c. 175L, relating to such notices, is crystal clear. Unless the person or company requesting such notices can show an actual policy condition or endorsement specifying such notices are to be given, they will be completely out of luck if they suffer damages due to not being notified.

A copy of Chapter 175L is available below: