Massachusetts Lemon Aid Law Bill Suggests Doubling Auto Dealer Bond Limit, Heightens Risk for Surety Companies

Author: Sadie Giacomelli


The State of Massachusetts is in the midst of considering changes to the State’s Lemon Aid Law after an influx of consumer complaints related to purchases of second hand (used) vehicles. In recent years, the most commonly received complaints by the State of Massachusetts Attorney General’s office have been about the sales of second hand vehicles.

The MA Attorney General’s office, in conjunction with Senator Paul Feeney, seeks to update current Massachusetts legislation with the petition of Senate Docket 1027 which would provide further protection to citizens leasing or buying used vehicles. More specifically, and critical to surety companies, is the doubling of the Motor Vehicle Dealer Bond limit from $25,000 to $50,000. According to the senator, the $25,000 limit is not cutting it as oftentimes it only covers one-third of the vehicle amount, or there are cases with multiple claimaints.

Read on for additional modifications and the impact this bill could have on surety underwriters. 

Surety Underwriters, Be Vigilant

Massachusetts is not the only state to consider an increased bond limit for motor vehicle dealers in recent years. In 2020, Alabama doubled the Motor Vehicle Dealer Bond limit from $25,000 to $50,000 to allow for a larger reimbursement to customers financially harmed by dealer misrepresentation. Sound familiar? With inflation, lower limits are often not enough to cover the full claim amount, especially when there are multiple claimants. Other states could soon follow suit.

If the bill passes, the risk for surety underwriters writing Massachusetts Auto Dealer Bonds will escalate based on two main components of the proposition: 

  1. Increased Bond Limit

    Pretty straightforward, but increased limit = increased liability. Surety companies may examine their current underwriting criteria and make adjustments to account for this change in liability, e.g. the number of years in business, higher premiums, and a review of financial statements.
  1. Claims Process

    The proposed legislation would eliminate a critical aspect of the claims process—the court. Losses may occur in larger amounts and with higher frequency.

    Currently, disputes may be handled entirely in court, with the possibility of never reaching the surety company. That isn’t to say claims don’t happen, but the court’s jurisdiction and a hoop to jump through help alleviate the amount of the claim or, at a minimum, holds the principal accountable for their actions. 

    With the customer’s ability to file bond claims directly, surety companies should expect more claims investigations and therefore, heightened Loss Adjustment Expenses. This is another critical reason underwriters should re-evaluate their underwriting process for Massachusetts Second Hand Motor Vehicle Dealer Bonds.

Proposed Legislation to Keep Tabs On

Massachusetts General Laws, Chapter 90, Section 7N¼:

Subsection (2)(B): Express warranty amounts required of dealerships to be increased as follows: 

(i): For 90 days or 3,750 miles, coverage is provided for vehicles that have an odometer reading of fewer than 50,000 miles (previously 40,000).

(ii): For 60 days or 2,500 miles, coverage is provided for vehicles that have an odometer reading between 50,000-100,000 miles (previously 40,000-80,000).

(iii): For 30 days or 1,250 miles, coverage is provided for vehicles that have an odometer reading between 100,000-200,000 miles (previously 80,000-125,000).

This would guarantee more time for a customer to request an inspection after they purchase their vehicle while upping the coverage for maximum mileage under the Used Vehicle Warranty Law.

Massachusetts General Laws, Chapter 140, Section 58:

Subsection (C)(1): Replace the $25,000 surety bond limit with a $50,000 requirement for second hand motor vehicle dealers.

Subsection (C)(2): The attorney general or any person harmed may lay claim against the bond when the dealer commits a negligent or fraudulent action. Current law requires persons to first seek final judgment in court prior to the bond being utilized.

Subsection (C)(9): New subsection with language to allow the attorney general to recover compensation on behalf of the person who sustained losses.

This bill can also be followed under the names bill, H.277 and bill, S.2323. Track it here.