A dispute between two insurers over which would cover the workers’ compensation claims of two injured employees has resulted in an Appeals Court decision clarifying the rules applicable to the cancellation of assigned risk workers’ compensation policies.
Under G.L. c. 152, § 65B assigned risk insurance carriers who wish to cancel such a policy are required to give notice to the Massachusetts’ Workers’ Compensation Rating and Inspection Bureau (Rating Bureau) and the assigned risk insured employer. Under that statute, the policy cancellation does not become effective until after the employer has had ten days after receipt of the cancellation notice to file objections with the Department of Industrial Accidents (“Department”).
The Department has had a longstanding rule that the ten-day period allowed after the receipt of the cancellation requires that a servicing carrier asserting the validity of a workers’ compensation assigned risk policy cancellation prove receipt by the insured through showing the carrier mailed the cancellation to the insured’s address by certified mail, return receipt requested.
The Appeals Court decision resulted from the Department declaring invalid a nonpayment cancellation a servicing carrier had mailed by first-class mail to an assigned risk in the demolition business. After an industrial accident, the general contractor’s insurer, that became liable if the cancellation was effective, contested the cancellation’s validity because the assigned risk carrier had not sent the cancellation notice by certified mail. The Department’s decision found the cancellation invalid and reinstated the workers’ compensation policy of the demolition company. As a result, the servicing carrier became liable for $250,000 in benefits due to the injured workers.
On an appeal by the servicing carrier, the Appeals Court vacated the decision of the Department as incorrectly interpreting G.L. c. 152, § 65B’s requirements and remanded the case for further proceedings consistent with its opinion.
The insurance policies for the assigned risk
Cruz Abatement & Contracting Services LLC (Cruz) provided demolition services as a subcontractor in the ordinary course of its business.
After Cruz had a voluntary workers’ compensation policy with AIM Mutual canceled effective February 26, 2015, Cruz applied to the Rating Bureau, as the manager of the assigned risk pool, for an assigned risk workers’ compensation policy. The Rating Bureau assigned ACE American Insurance Company (ACE) as Cruz’s workers’ compensation carrier. ACE, in its turn, used Travelers to service the assigned risk policies it received from the assigned risk pool.
ACE canceled Cruz’s first policy for nonpayment of premium effective October 29, 2015. On November 10, 2015, Cruz submitted a new application to the assigned risk pool, which under its rules, reassigned Cruz to ACE. This second policy issued by ACE also had a nonpayment cancellation: This time effective February 1, 2016.
On February 16, 2016, for the third time, with a new producer, Cruz submitted another application to the assigned risk pool. Again, consistent with the assigned risk pool’s rules, ACE received a reassignment of Cruz as a risk.
This third policy had effective dates for the period between February 26, 2016, and February 26, 2017.
During the time that ACE had issued assigned risk policies to Cruz, Cruz’s address of 60 Island Street, Suite 211, Lawrence, Massachusetts, did not change.
On March 18, 2016, ACE mailed a bill to Cruz for an additional premium, which Cruz did not pay. Accordingly, Travelers, on behalf of ACE, issued another nonpayment cancellation to the Lawrence address provided by Cruz with an effective cancellation date of May 8, 2016. Under its standard procedure, Travelers obtained a certificate of mailing from the United States Post Office showing the mailing to Cruz at its Lawrence address of the notice of cancellation. Travelers sent the cancellation notice by “first-class” mail, and the Post Office never returned the mailed cancellation to Travelers.
The accident and the general contractor’s workers’ compensation insurer’s liability
On September 1, 2016, Cruz had two employees working on a subcontract that it had with Moran Environmental Recovery (Moran).
While working on staging, the staging tipped and collapsed through the negligence of other workers. The two employees fell fifteen feet to the ground and suffered multiple injuries that caused over $250,000 in workers’ compensation benefits being paid to them or on their behalf.
Based on its having canceled Cruz’s policy effective May 8, 2016, ACE took the position that Cruz did not have a workers’ compensation policy in force on the accident date. Cruz’s policy cancellation, if valid, made the Great Divide Insurance Company (Great Divide), the workers’ compensation insurer for the general contractor, Moran, liable to pay Cruz’s employees’ workers’ compensation benefits under Massachusetts law.
Great Divide, for its part, took the position that the cancellation by Travelers, on behalf of ACE, was not legally valid. Therefore, ACE continued on the risk and had the responsibility for the benefits due to Cruz’s employees for the September 1, 2016 accident.
The dispute over the validity of the cancellation turned on a question of law that the Department applied to assigned risk cancellations but not to voluntary cancellations. The question was “whether an insurer is obliged to prove receipt of such notice, or whether the insurer may instead send the cancellation notice to the insured by first class mail.” The Department held that for assigned risk policy cancellations, the insurer had to show actual receipt. ACE argued that the general cancellation statute, G.L. c. 175, § 187C, allowed for first-class mail notice.
Both Great Divide and the employees sought an evidentiary hearing. After two days of hearing evidence centered on the issue of the cancellation’s mailing, the Department’s judge issued a decision concluding:
“ACE American Insurance Company could not produce certified proof of mailing to establish delivery and receipt of the notice of cancellation by the employer… I find that ACE American Insurance Company attempted but failed to properly cancel the policy issued to Cruz Abatement and Contracting Services.”
The administrative judge’s decision invalidated ACE’s cancellation, making ACE liable for all the benefits paid to or on behalf of Cruz’s injured workers. The decision found that under G.L. c. 152, § 65B, insurers issuing notices of cancellation involving assigned risk workers’ compensation insurance policies needed to “produce certified proof of mailing and receipt of the notice of cancellation by the Employer” to establish valid cancellations.
ACE appeals to the Department’s Reviewing Board
ACE appealed the decision to the Department’s Workers’ Compensation Reviewing Board. This board, relying on the Department’s precedent and practice, affirmed the judge’s decision. This precedent required an assigned risk carrier to prove a valid cancellation of an assigned risk workers’ compensation policy by, at least, showing receipt by the insured of a cancellation notice sent certified mail return receipt requested to the policyholder’s address of record.
ACE finds a sympathetic ear for its argument in the Appeals Court
ACE appealed the Reviewing Board decision. This time the appeal left the Department’s jurisdiction and went to the Appeals Court,
In their decision, the Appeals Court judges noted that Massachusetts law required them to give great deference to the Department’s interpretation of statutes, such as § 65B, that it administers. The judges then acknowledged the Department’s longstanding rule concerning the notice requirements for assigned risk policy cancellations. However, the Court found that these rulings were all based upon the Department’s Reviewing Board’s interpretation of the statute concerning the cancellation of assigned risk premiums, G. L. c. 152, § 65B. The judges concluded by noting that “an incorrect interpretation of a statute by an administrative agency is not entitled to deference” and that, in their opinion, the Department’s Reviewing Board interpretation of § 65B was an incorrect one.
The Appeals Court then went on to state that G. L. c. 175 § 187C generally regulates notices of insurance cancellations. This statute authorizes notices of cancellation by first-class mail to the insured’s address of record with the insurer, without requiring proof of receipt of the cancellation notice by the insured.
The Reviewing Board’s position, as stated by the Appeals Court, was that “the general provisions of § 187C, must be understood by reference to the more specific provisions of G. L. c. 152, § 65B, pertaining to assigned risk policies.” Although § 65B did not state any method for giving assigned risk cancellation notices, the Reviewing Board had a rationale for § 65B restricting the application of § 187C. That rationale was that § 65B afforded a right to assigned risk insureds that the law did not afford to voluntary insureds in similar circumstances. That right was the opportunity to file objections within ten days after receipt of the notice of cancellation. The Reviewing Board’s position in this case, and other cases, was, according to the Appeals Court, that to allow assigned risk insureds to exercise this right to file objections, they must first receive the notice of cancellation. Thus, for this right to have meaning, the assigned risk insurer must show, if requested, that the assigned risk insured received the cancellation.
Reversal of the longstanding rule on notice to assigned risk insureds
After stating the Department’s Review Board’s position, the Appeals Court concluded that:
The [Reviewing] Board reads into the statute [§ 65B] the requirement that the statute itself does not impose.”
The Court pointed out that when § 65B became law in 1991, as part of that year’s workers’ compensation reform act, the existing case law in Massachusetts provided a “mailbox” rule. This rule stated that the delivery of a document or notice as first-class mail to the United States Post Office established a rebuttable presumption that the addressee had received the notice.
Since this so-called “mailbox” rule, stated existing law when the Legislature enacted § 65B in 1991, and the Legislature did not require any different method of notice for assigned risk cancellations, the judges presumed that the Legislature accepted this rule as a valid method for giving such notice.
The Court also observed that if the Legislature had intended to impose a requirement for notice by certified mail, return receipt requested, for assigned risk policy cancellations, it would have done so explicitly, and not by implication.
The Court noted that contrary to the contentions Great Divide made in its arguments that the Appeals Court had not previously endorsed the Reviewing Board’s requirement for notice under § 65B. The Court analyzed the three cases cited by Great Divide and concluded that none of them stated such a proposition. Instead, at best, in one case, the Court had merely “observed the reviewing board’s practices without further comment.”
The Appeals Court concluded ruling that the decision by the administrative judge and the Reviewing Board were incorrect in determining that ACE’s notice sent by first-class mail was ineffective to cancel an assigned risk policy. Instead, insurers could rely upon a certificate of mailing evidencing the mailing of the cancellation notice by first-class mail to the insured’s address of record, even for assigned risk policies.
Finally, the Court remanded the case to the Department for further proceedings consistent with its decision. The judges reasoned that since the “mailbox” rule creates a “rebuttable presumption,” meaning that any evidence to the contrary can make the presumption ineffective, Great Divide should have the opportunity on remand to present what evidence if any, it may have to establish that Cruz did not receive the notice of the cancellation.
Great Divide’s application for further appellate review to the Supreme Judicial Court
The Massachusetts Appeals Court is an intermediate appellate court. The ultimate judicial authority resides with the Supreme Judicial Court. Parties dissatisfied with an Appeal Court’s decision may apply for further appellate review. However, the allowance of any further appeal is discretionary with the Supreme Judicial Court.
On August 19, 2020, Great Divide filed an application for further appellate review to the Supreme Judicial Court. ACE has twenty days to file its opposition to Great Divide’s application.
Agency Checklists will keep its readers posted on this application.
Also, kudos to Attorney Garrett Harris, of ForbesGallagher (the sponsor of Agency Checklists) who represented ACE. Garrett specializes in representing insurers on workers’ compensation cancellation issues. To get in touch with either Owen or Garrett, please use the email link in the bio below.
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Over the course of his career, Owen has argued a number of cases in the Massachusetts Supreme Judicial Court and has helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
Interested in contacting Owen? Please use the email link below or leave him a comment.