United States (Massachusetts)
LOCKE LORDLaura Bange Stephens laura.bange@lockelord.com
1. Insurance intermediation activities
1.1 Is the distribution of insurance products (hereinafter referred to as ‘insurance intermediation activities’ or ‘insurance intermediation’) limited to insurance intermediaries in your country?
Generally, the distribution of insurance products in Massachusetts is limited to brokers and agents that are duly licensed under Massachusetts law. The solicitation or negotiation of policies of insurance may be performed by an employee when such activities are performed on the premises of an insurance broker, agent or company, but only where these activities are under the immediate direction and general supervision of a duly licensed broker or agent (Massachusetts General Laws (MGL) chapter 175, section 162).
1.2 What does the term ‘insurance intermediation’ include? Is there any definition set forth by statutory or case law? In any case, please indicate which activities/services are included in the above definition, for example, presentation or proposal of insurance products, assistance or consultancy aimed at drafting the agreement. Are collaboration activities that relate to the administration or execution of the contracts drafted, even in the case of accidents, included in the definition? Does the drafting of contracts or insurance agreements in a collective form on behalf of insured individuals also form part of insurance intermediation activities?
Insurance intermediation includes the negotiation, sale and solicitation of insurance products (MGL chapter 175, section 162H). Pursuant to Massachusetts statute, ‘negotiate’ means that a person either sells insurance or obtains insurance from insurers for purchasers and confers directly with, or offers advice directly to, a purchaser or prospective purchaser of a particular contract of insurance concerning any of the benefits, terms, or conditions of the contract. ‘Sell’ refers to the exchange of a contract of insurance by any means, for money or its equivalent, on behalf of an insurance company. ‘Solicit’ means attempting to sell insurance or asking or urging a person to apply for a particular kind of insurance from a particular company.
1.3 Are insurance intermediation activities allowed as ancillary activities to other professional activities (eg, travel or rent-a-car services, etc) and to what extent? Furthermore, are there exceptions that allow actors, other than insurance intermediaries, to carry out insurance intermediation activities? Is it a matter related, for example, to the risk covered, the duration or the cost of the policy premium, etc?
Generally, Massachusetts has adopted the view that persons and entities involved in the negotiation, sale and solicitation of insurance products must be duly licensed. Special licences are available for industries in which the distribution of insurance products is an ancillary activity. Examples include bank and credit union insurance sales and automobile clubs that offer services such as theft or reward service, map service, towing service, emergency road service, bail bond service, legal fee reimbursement service in the defence of traffic offences, and the participation in an accident and sickness or death insurance benefit programme (see MGL chapter
174B, sections 2 and 4). By way of further example, vendors of portable electronic devices who offer insurance coverage for the repair or replacement of such devices in cases of loss, theft and inoperability due to mechanical failure, malfunction or damage, must obtain a special licence to sell portable electronics insurance (MGL chapter 175, section 162Y).
2. Insurance intermediaries’ requirements
2.1 In order to act as an insurance intermediary, is there need for an authorisation and/or to be enrolled in a register? If yes, what are the requirements to be authorised/enrolled in the register as an insurance intermediary (individual or legal entities, integrity and/or professional requirements, etc)? Briefly explain how it works.
Yes. A person may not sell, solicit or negotiate insurance in Massachusetts for any class or classes of insurance unless the person is licensed for the applicable line of insurance in accordance with Massachusetts law (MGL chapter 175, section 162I. The licensing requirement extends to the solicitation of insurance to Massachusetts residents through telemarketing or the internet.
By virtue of MGL chapter 175, sections 162L and 162K an applicant for a licence to sell, solicit or negotiate insurance (hereinafter a ‘producer licence’) must:
a) be at least 18 years old;
b) be a resident of Massachusetts;
c) not have committed any act that is a ground for denial, suspension or revocation; d) pay the required fees; and
e) successfully pass the required insurance producer licensing examination.
2.2 In what form can anyone access and verify the registration/authorisation or verify the fact that the insurance intermediary is a professional (eg via the web)?
To verify the licensure status of a broker or agent, members of the public must contact the Massachusetts Division of Insurance. The Division of Insurance maintains an internal database of all brokers and agents licensed in Massachusetts. Access to the
database is available on the internet at:
www.mass.gov/ocabr/insurance/providers-and-producers/insurance-producers/licensed-listings.html. The Division of Insurance verifies non-resident licensure status through the producer database maintained by the National Association of Insurance Commissioners (NAIC).
2.3 Are insurance intermediaries with a registered office in another country allowed to operate in your country and how (eg, under the right of establishment or freedom to provide services in your country, as in the EU)? If yes, under what conditions? In such a case, are they bound by the same obligations as the insurance intermediaries with a registered office in your country? Please describe.
Individuals and entities licensed in a US state outside of Massachusetts may be eligible for reciprocity by applying for a non-resident licence if certain conditions are met (MGL chapter 175, sections 162N, 162O and 173–174). There does not appear to be similar offerings for individuals or entities licensed in jurisdictions outside of the US.
3. Different types of insurance intermediaries
3.1 Please list the different types of insurance intermediaries acting in your country such as agents, brokers, banks, financial intermediaries or financial advisers.
Massachusetts permits agents, brokers, financial institutions and financial planners to engage in the negotiation, sale and solicitation of insurance products if they are duly licensed.
3.2 Do insurance intermediaries need to enter into a written contract with the insurers (or receive a mandate from the insurers)?
In Massachusetts, an insurance producer may not act as an agent of an insurer unless the insurance producer becomes an appointed agent of that insurer (MGL chapter 175, section 162S). To appoint a producer as its agent, the appointing insurer must file a notice of appointment with the Insurance Commissioner. Before being appointed, an applicant must first become licensed as a producer.
3.3 Can an insurance intermediary enter into a contract with the insurers (or receive a mandate from the insurer) and in turn enter into one or more agreements with other insurance intermediaries (the so-called horizontal distribution)?
Under Massachusetts law, an insurance producer may be appointed to act on behalf of multiple insurers (MGL chapter 175, section 162S. Massachusetts does not appear to prohibit an insurance intermediary from entering into a contract with an insurer while simultaneously contracting with other insurance intermediaries.
3.4 The insurance intermediaries more in detail: 3.4.1 The agent
3.4.1.1 Does the role of insurance agent exist in your country? If yes, describe the agent’s functions.
In Massachusetts, an insurance agent is defined as an individual ‘who for
compensation solicits insurance on behalf of any company,’ Elahmar v Motiva Enterprises LLC, 2008 WL 2434112, at *1 (Mass. Super. 10 June 2008), citing Hudson v Mass. Prop. Ins. Underwriting Ass'n, 386 Mass. 450, 455 (1982). However, the general relationship between an insurance agent and its policy-holding customer does not impose a duty on the agent to investigate the customer’s needs for particular coverage or to advise as to the availability of insurance products to meet those needs in the absence of special circumstances (Guida v Herbert H. Landy Ins. Agency, Inc, 84 Mass. App. Ct. 1105 (2013)).
Factors creating ‘special circumstances’ may include: (i) a prolonged business
relationship; (ii) the complexity and comprehensiveness of the customer’s coverages; (iii) the frequency of contact between a customer and agent to attend to the customer’s insurance needs; and (iv) the extent to which a customer relies on the advice of the agent by reason of the complexity of the policies.
3.4.1.2 In particular, does an agent act on behalf of the insurer or the insured? Who pays the agent’s remuneration? To what kind of remuneration is the agent entitled?
An insurance agent usually is deemed to represent the insurer (Foisy v Royal Maccabees Life Ins. Co., 356 F.3d 141, 150 (1st Cir. 2004), citing Couch on Insurance (3rd edition 1999)). Typically, the insurer on whose behalf the policy is written pays a commission to the insurance agent, which is caluculated as a percentage of the premium earned.
3.4.1.3 If an agent acts on behalf of the insurer, describe the type of work relationship with the insurer (eg, subordinate, para-subordinate or
freelance, self-employed etc). Does the ‘principal-agent model’ exist, that is, is one appointed by the insurer to manage a particular branch or subsidiary?
Generally, insurers in Massachusetts transact business with both exclusive agents and non-exclusive agents. Exclusive agents transact business only on behalf of the insurer and its affiliates, whereas non-exclusive agents work with multiple insurers and act as independent freelance producers. It does not appear that Massachusetts law would preclude the ‘principal-agent model’.
3.4.1.4 What type of organisation does the agent have? Can he have staff working for him (eg, sub-agents)?
An agent may either act as an individual producer, or be part of a licensed agency that employs agents and staff. Licensees employed by the agency solicit insurance on behalf of insurers. Agents may appoint sub-agents, but any such sub-agents must be duly licensed under Massachusetts law (MGL chapter 175, section 162).
3.4.1.5 Is the relationship between the insurer and the agent regulated by a collective bargaining agreement? If yes, what does it mainly cover? Can the relationship be exclusive to a particular area? Is the remuneration established by the collective bargaining agreement? Can the provisions be waived by the parties’ mutual agreement?
There are no specific provisions of the Massachusetts Insurance Code addressing collective bargaining agreements in connection with insurance agents. Generally, relationships between an insurer and agent are not regulated by collective bargaining agreements in the US.
3.4.1.6 Does the termination of the work relationship between the agent and insurer provide for the agent’s obligation to return the portfolio of contracts? In such a case, would the agent be entitled to an indemnity?
Under Massachusetts law, an insurer must provide written notice to an agent of its intent to cancel the agency relationship at least 180 days before the proposed effective date of any such cancellation (MGL chapter 175, section 163). Upon receipt of such notice, the agent may refer the matter to a panel of three referees. The referees then decide whether or not such cancellation will affect the renewal, continuation or replacement of any policies placed with the insurer through the efforts of the agent as to justify renewal or continuation of any policies then in effect. If the referees find that the cancellation will have this effect, then they may order the continuance or renewal of any policies expiring within a period of 13 months, at a rate of compensation to the agent equal to that as provided in the cancelled agency agreement (MGL chapter 175, section 163).
3.4.2 The broker
3.4.2.1 Please describe the broker’s services. In general terms, do the services consist of intermediation or are they similar to consultancy/advisory activities? Is the broker an independent actor?
An insurance broker is defined as an individual ‘who for compensation acts or
aids in negotiating policies of insurance,’ (Elahmar v Motiva Enterprises LLC, 2008 WL 2434112, at *1 (Mass. Super. 10 June 2008), citing Hudson v Mass. Prop. Ins. Underwriting Ass'n, 386 Mass. 450, 455 (1982)). The broker acts as a middleman between the insured and insurer, and will not be under the employ of
any particular insurance company (Foisy v Royal Maccabees Life Ins. Co., 356 F.3d 141, 150 (1st Cir. 2004)). The broker typically either places an order for insurance with a company selected by the insured, or, in the absence of such selection, with a company the broker selects (Markel American Ins. Co. v Madonna, 448 F.Supp.2d 234 (D. Mass. 2006)).
3.4.2.2 Who pays for the broker’s remuneration (please specify case by case for the different services, if any)? Is the broker allowed to retrocede a portion of his remuneration to the insurer or to the insured?
In Massachusetts, brokers often receive commissions from the insurer (MGL chapter 175, section 113I). A broker may also receive separate compensation from the insured in the form of a broker fee if the contract between the broker and the insured provides for such compensation (see Capital Site Mgmt. Associates v Inland Underwriters Ins. Agency, Ltd., 61 Mass. App. Ct. 14, 18 (2004)).
3.4.3 Banks, financial intermediaries, financial advisers and others allowed to act as insurance intermediaries
3.4.3.1 Can banks, financial intermediaries and/or financial advisers act as insurance intermediaries?
Financial institutions and financial planners may engage in the negotiation, sale and solicitation of insurance products if they are duly licensed to do so under Massachusetts law, as further discussed in 3.4.3.4. below. (See MGL chapter 175, section 162L.)
3.4.3.2 Please define a financial intermediary. Are there particular requisites for the profession of financial intermediary? Does the financial intermediary have to be enrolled in another register (eg, a register of financial intermediaries)?
A ‘financial intermediary’ is any non-profit, public or quasi-public organisation or
agency that assembles public or private capital for the purposes of making qualified investments (MGL chapter 63, section 29E). Under Massachusetts law, financial intermediaries engaged in the business of effecting transactions in securities for the accounts of others are required to register with the Massachusetts Securities Division (MGL chapter 110A, sectopm 201(a)). Under US federal law, financial intermediaries engaged in interstate commerce that act as broker-dealers must register with the Securities and Exchange Commission (SEC) (15 United States Code, section 780).
3.4.3.3 Please define a financial adviser. Are there particular requisites for the profession of financial adviser? Does the financial adviser have to be enrolled in another register (eg, a register of financial advisers)?
Persons who, as an integral part of financially-related services, provide advisory services or hold themselves out as providing advisory services fall under the
definition of ‘financial adviser’. In the context of insurance, a financial adviser is a
person who, for a fee, examines policies or annuities to give advice, counsel or opinions. Under Massachusetts law, financial advisers are required to register with the Massachusetts Securities Division (MGL chapter 110A, section 201(c).
3.4.3.4 Can financial intermediaries and/or financial advisers distribute any insurance and/or financial products? If yes, under what conditions or with what limitations?
A financial institution or financial adviser may sell, solicit or negotiate insurance in Massachusetts. Before doing so, the financial institution or financial adviser must first obtain a producer licence (MGL chapter 175, sections 162I and 162L). By virtue of MGL chapter 175, sections 162L and 162K, an applicant for a producer licence must:
a) be at least 18 years old;
b) be a resident of Massachusetts;
c) not have committed any act that is a ground for denial, suspension or revocation;
d) pay the required fees; and
e) successfully pass the required insurance producer licensing examination. A financial adviser who is not engaged in the sale, solicitation or negotiation of insurance but who, for a fee received, examines insurance policies or annuities to give advice, counsel, recommendations or information, must be licensed as an ‘insurance adviser’ by the Massachusetts Division of Insurance (MGL chapter 175, sections 177A and 177B).
3.4.3.5 With reference to insurance intermediaries other than agents, brokers, banks, financial intermediaries and financial advisors, as indicated under question 2.1 above (if any), please describe what kind of products they can distribute and under what conditions.
Please refer to 1.3, above.
4. Rules of conduct and responsibilities
4.1 Are there rules of conduct that insurance intermediaries should comply with (eg, duties in relation to the obligation of utmost care, correctness, utmost good faith, information, adequacy, transparency, conflict of interests, filing of documentation, separate accounting or other accounting obligations)?
Please describe the above duties, specifying if they apply to all types of insurance intermediary (eg, agents, brokers, banks, financial intermediaries, financial advisers, etc) and whether the content differs – with particular reference to responsibility – according to the type of actor/activity and person (insurer or insured) receiving the activity.
Massachusetts provides a comprehensive statutory scheme for the regulation of all phases of insurance business; MGL chapter 175, section 1 et seq. forms the general insurance law. In addition to the general insurance law, MGL chapter 176D sets forth specific regulations that proscribe unfair competition and unfair or deceptive acts of practices by all ‘persons’, including corporations and individuals, who are engaged in the business of insurance. For example, MGL chapter 176D, section 3(1) prohibits misrepresentations and false advertising in connection with the benefits, advantages, conditions, or terms of any insurance policy; MGL chapter 176D, section 3(2) prohibits making any assertion or representation concerning the business of insurance which is untrue, deceptive or misleading; MGL chapter 176D, section 3(9) prohibits a number of unfair claim settlement practices; and MGL chapter 176D, section 3(7) prohibits unfairly discriminating between individuals of the same class and of essentially the same hazard in the amount of premium, amount of policy benefits, any of the terms or conditions of an insurance policy, or in any other manner.
4.2 Does the insurance intermediary represent the insurer? By way of example, is the agent also the insurer’s representative vis-à-vis the customer, and if so, does this also apply during trial before a court? Is there a matter of imputation of knowledge? What happens when a broker has information on matters relevant to the insurer’s decision to insure which the broker fails to disclose to
the insurer? Is the insured deemed to have breached its duty of disclosure in such circumstances? In which cases? Can the insurance intermediary be accountable for the contracts he executed on behalf of the insurer?
In general, Massachusetts law treats insurance intermediaries who act as agents or brokers as ‘agents’ of the insurer from a legal standpoint. Massachusetts courts have imposed liability on a broker for breach of contract or negligence in obtaining insurance coverage and establishing policy limits (see, eg, Bicknell, Inc v Havlin, 9 Mass. App. Ct. 497 (1980)). Massachusetts courts have also determined that an insurance agent may be liable for misconduct in connection with the claims settlement process (Schwartz v Travelers Indem. Co., 50 Mass. App. Ct. 672, 680 (2001)). Moreover, in Massachusetts, an insurance agent will be personally liable on all contracts of insurance unlawfully made by or through him, directly or indirectly, for or on behalf of any company that is not authorised to do business in Massachusetts (MGL chapter 175, section 171).
4.3 Is the insurer jointly liable for damages caused by the insurance intermediary, appointed by the same, when executing intermediary activities? Who is liable vis-à-vis the insured person? Is it always the intermediary or the insurer? Where an insurance intermediary acts as an agent or broker of an insurer, Massachusetts courts have imposed liability on an insurer, as a principal, for the conduct of the agent or broker. In New England Acceptance Corp. v Am. Mfrs. Mut. Ins. Co., 373 Mass. 594 (1977), for example, two insurance companies, as principals, were liable for conduct of two insurance agents in fraudulently selling insurance policies, notwithstanding that insurance companies had no knowledge of the fraudulent scheme; see also Schwartz v Travelers Indem. Co., 50 Mass. App. Ct. 672, 680 (2001) in which it was established that both insurer and broker could be found liable in connection with allegedly unfair claims settlement practices.
4.4 Are there particular regulations or specific forms of compensation for damages caused to the insured person?
Massachusetts law does not recognise a private cause of action for an insurer’s violations of MGL chapter 176D, section 3, with the exception of MGL chapter 176D, section 3(9); see Grande v PFL Ins. Co., 2000 Mass. App. Div. 261, 264 (Mass. App. Div. 2000). Other than MGL chapter 176D, section 3(9), all provisions of MGL chapter 176D are enforceable only by the Massachusetts Commissioner of Insurance; see
Foisy v Royal Maccabees Life Ins. Co., 241 F. Supp. 2d 65, 68–69 (D. Mass. 2002),
citing Thorpe v Mut. of Omaha Ins. Co., 984 F.2d 541, 544 n.1 (1st Cir. 1993). If an insurance intermediary violates a cease and desist order issued by the Commissioner of Insurance relating to a violation of MGL chapter 176D, the insurance intermediary will be ordered to pay to the Commonwealth of Massachusetts a sum of up to $10,000 for each violation and may be subject to suspension or revocation of its licence (MGL chapter 176D, section 10). In addition, the Commissioner may order that restitution be made by an insurance intermediary to any claimant who has suffered actual economic damage as a result of the intermediary’s unfair or deceptive act or practice (MGL chapter 176D, section 7).
Although there is no private cause of action under MGL chapter 176D, section 3, an insured may nonetheless recover actual damages and attorneys’ fees in circumstances where an insurance intermediary has engaged in unfair or deceptive acts or practices under MGL chapter 93A, section 2; see United States ex rel. Metric Elec., Inc v Enviroserve, Inc, 301 F. Supp. 2d 56, 71 (D. Mass. 2003). Further, an insurance intermediary may be liable for multiple damages under MGL chapter 93A, section 2 where the intermediary’s conduct is ‘wilful’ or ‘knowing’; see Rhodes v AIG Domestic Claims, Inc, 461 Mass. 486, 499 (2012).
5. Supervision and sanctions
5.1 Regardless of the requirement of an authorisation and/or enrolment, are insurance intermediaries subject to the control of supervisory bodies? Does the supervisory body have powers/duties of prudential supervision on the insurance intermediary’s activities, and if so, in what way does it act?
Insurance intermediaries are subject to the oversight of the Massachusetts Commissioner of Insurance. The Commissioner supervises the activities of insurance intermediaries and imposes sanctions if it is determined that an intermediary has engaged in misconduct. As further discussed in 5.2 and 5.5 below, such sanctions may include the assessment of fines and the revocation of the intermediary’s licence. The Commissioner also ensures that insurance intermediaries remain in compliance with continuing education requirements, and imposes sanctions for non-compliance with such requirements. Under Massachusetts law, continuing education requirements apply to persons licensed for the following types of insurance:
a) life insurance, annuity contracts, variable annuity contracts and variable life insurance;
b) sickness, accident and health insurance; and
c) all lines of property and casualty insurance (MGL chapter 175, section 177E). A Massachusetts producer must complete 60 hours of continuing education within the first three years following the date of the original issue of a licence, and 45 hours for each subsequent three-year period (211 Code of Massachusetts Regulations 50.05).
5.2 Are there fines for violations of the insurance intermediaries’ obligations? If yes, please describe.
Yes. The Massachusetts Insurance Code provides for the assessment of fines for a variety of specific offences. First, any agent, broker or insurance adviser who misrepresents the terms of a policy of insurance in order to induce a policyholder to forfeit an existing policy may be fined up to $1,000 (MGL chapter 175, section 181). In addition, an insurance agent or broker who knowingly procures by fraudulent representations payment of any premium on any policy of insurance may be fined up to $1,000 (MGL chapter 175, section 170). An insurance intermediary who aids in the negotiation, continuation or renewal of a policy with an insurer that is unlicensed to issue policies in Massachusetts may be fined up to $500 (MGL chapter 175, section 160). An insurance intermediary who fails to satisfy the applicable continuing education requirements may be subject to a fine of up to $100 for each hour of instruction by which the intermediary fails to meet the requirements (MGL chapter 175, section 177E).
If the Commissioner of Insurance determines that an intermediary has engaged in an unlawful act or practice within the meaning of MGL chapter 176D, section 3, then the Commissioner may issue a cease and desist order (MGL chapter 176D, section 6). If an insurance intermediary violates a cease and desist order, the Commissioner may order that the intermediary pay a sum of up to $10,000 for each violation (MGL chapter 176D, section 10. The Commissioner may also order suspension or revocation of the intermediary’s producer licence.
5.3 Do sanctions also apply to foreign intermediaries who operate in your country? Yes.
5.4 Is there a consultation procedure with the insurance intermediary before the fine is applied?
Yes, basic due process protections apply. Generally, prior to the imposition of sanctions on an insurance intermediary, the intermediary will receive notice of any alleged misconduct. Subsequently, a hearing will be held before an independent trier of fact to determine whether sanctions are appropriate and, if so, to what extent such sanctions should be imposed. See, for example, MGL chapter 175, sections 162R, 163, 177B and 177E.
5.5 Could the application of more fines, or the breach of particular regulations, result in the revocation of the authorisation, or in the intermediary being struck off the register (if any), or in the prohibition to act as an insurance intermediary? If so, what are the most relevant circumstances?
Under the Massachusetts Insurance Code, the Commissioner of Insurance may, after proper notice and hearing, revoke, suspend, or refuse to issue the licence of an insurance intermediary for the following causes:
a) providing a materially false statement in the licence application; b) violating an insurance law, regulation, or order of the Commissioner; c) obtaining or attempting to obtain a licence by fraud;
d) improper handling of money in the course of the business of insurance;
e) guilty finding of fraudulent, unfair, or coercive trade practices, or the showing of incompetence, untrustworthiness, or financial irresponsibility;
f) forgery of another’s name on an insurance application; g) cheating on the licence examination;
h) knowingly accepting insurance business from an unlicensed party; i) intentionally misrepresenting the terms of an insurance contract; j) conviction of a felony;
k) having an insurance producer’s licensce revoked, denied or suspended in another state;
l) failing to comply with a court order for child support; or m) failing to pay state income tax. (MGL c 175, section 162R)
Failure to comply with continuing education requirements or falsification of a certificate of compliance may also result in the suspension of a licence (MGL chapter 175, section 177E(H)).
Upon revocation of a licence, the Commissioner of Insurance may order the licensee to dispose of any interest as owner, partner, stockholder, officer or employee of any licensed producer (MGL chapter 175, section 166B). After having a licence revoked, an agent or broker may not own, manage, direct or be an employee of any agent or broker without the prior approval of the Commissioner.
