As shown in recent blog postings, our San Francisco insurance attorneys follow all the relevant legal and political developments in insurance law, particularly as they affect Californians. This blog has covered potential changes to laws relating to automobile insurance, flood insurance, and insurance coverage for autism, to name a few. Another interesting development in California insurance law is Assembly Bill 1734 introduced by Assemblyman Curt Hagman in February.
This bill proposes to provide choices to policyholders when an insurance company becomes insolvent and is liquidated by the state. It also would, if enacted, provide the policyholders with information regarding their claims, the financial security of the company in liquidation, and the expected length and result of the liquidation. In general, liquidation of these companies and sorting out payment for claims and paying creditors can take a decade or more.
When an insurance company becomes insolvent, the Insurance Commissioner terminates the business by cancelling policies and not issuing or renewing policies. Then, if it is determined that the company cannot be rehabilitated or saved, the assets of the company are transferred to the California Department of Insurance’s Conservation and Liquidation Office (CLO) (http://www.caclo.org/perl/), which sells off the assets to pay policyholder claims and other creditors. The CLO operates as a fiduciary for the claimants until the assets are dispersed and the claims are paid. California also has the California Insurance Guarantee Association (CIGA) and the California Life and Health Insurance Guarantee Association (CLHIGA) to help meet the obligations of insolvent insurers through reviewing and paying claims. When a claim is either not covered by one of these organizations or it exceeds the maximum amount (except in worker’s comp cases, CIGA has a $500,000 limit), the CLO steps in with the proceeds from the asset sales.
As of February, the CLO was liquidating the assets of 22 “estates”, the term they use for a company in liquidation. Since 2000, the CLO has closed 59 estates, although not all estates have sufficient assets available to be able to pay claims, which are usually paid by CIGA or CLHIGA, but generally recovery will not be at 100 percent.
AB 1734 would allow policyholders to offer or restrict access to their claims so that other entities desiring to purchase their claim may contact them. This bill would, however, only apply to corporate claims and individual policyholder information would not be available. Assemblyman Hagman stated that this would allow companies to avoid the uncertainty of waiting to figure out if the insolvent company would ever be able to pay the claim. He said in a statement, “There is no reason they should be trapped in the purgatory of a government bureaucracy averaging 10 years to complete their task.”
However, Nicole Mahrt Ganley, spokeswoman for the Association of California Insurance Companies, said there are already laws in place to protect policyholders. She said her organization does not have a position on this new bill, but that California in general has a “very good” safety net with a guarantee fund to ensure policyholder protection in case of a bankruptcy.
In any event, if you have had trouble with an insurance company in San Francisco, Oakland, or any surrounding areas, please get in touch with our Bay Area insurance lawyers to see how we can help.
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