The Case: Golchin v. Liberty Mutual Insurance Company – Supreme Judicial Court
What the Court said:
- Division of Insurance bulletins are not regulations having the force of law. They may be persuasive interpretation of statutes and policy language but are not an “official agency action.”
- Because the commissioner may have the power to issue a regulation on the subject matter of a particular bulletin does not make that bulletin legally binding. “Merely because the commissioner is possessed of authority regarding a particular topic does not render his every pronouncement regarding that topic a regulation possessing the full force and effect of a statute.” (quote from decision).
- Importantly, for insurance companies and their agents, actions based upon a bulletin can be used as evidence of “good faith in defending against multiple damages under G.L.c. 93A. “… in light of the commissioner’s expertise, disinterested position, and regulatory authority–an insurer’s reasonable interpretation of a division of insurance bulletin must be considered evidence of good faith on the part of the insurer.” (quote from footnote in case).
Why It’s Important:
The primary question in Golchin related to whether a a passenger injured in an automobile accident to seek medical expenses under the “medical payments” coverage or “MedPay” of a standard Massachusetts automobile insurance policy where she has already recovered those expenses under a separate policy of health insurance.
The Supreme Judicial Court reversed the Appeals Court that had affirmed the dismissal of a class action complaint alleging that Liberty Mutual had breached its contracts and acted in a manner to subject it to multiple damages under G.L.c. 93A for “unfair and deceptive acts or practices.” In making this decision, the Supreme Judicial Court addressed the question of the legal status of Division of Insurance bulletins.
For agents, this ruling is important because it states that bulletins do not have the force of law. They are only interpretations of the commissioner concerning the statutes he administers.
The result is that neither agents nor insurance companies can be held administratively liable for not following a bulletin. For example, under bulletin 2007-15, insurance companies are to give notification to claimants in third party liability cases when a settlement check is sent to that claimants lawyer. Where the bulletin does not have the force of law the failure of a company to comply with that bulletin should not subject it to any administrative sanction. It may be a good and desirable practice but it is not a practice mandated by law under the Supreme Judicial Court’s ruling on the legal status of Division of Insurance bulletins.
Caveat: Conversely, while the failure to follow a bulletin may not result in administrative sanctions, bulletins have been used by private parties in 93A civil suits as evidence of the standard of conduct that might be applicable to insurers.
If you have any questions about this decision or how it may affect your company, contact Owen Gallagher on his direct line at 617.598.3801.
By Owen Gallagher