Multi-State insurance company insolvencies for the most part have been few and far between in the property & casualty insurance world for the past several years. However, on March 11, 2021 Bedivere Insurance Company was declared insolvent and ordered liquidated by a court of competent jurisdiction in Pennsylvania. The company (including the companies that merged into it prior to liquidation) was licensed in all fifty states, and presents us with an opportunity to remind those in the insurance & legal community of some basic provisions of state guaranty funds.
The various Guaranty Funds are created by statute and have statutory duties and obligations should a member insurance company be declared insolvent and ordered liquidated by a court, as was the case of Bedivere Insurance Company recently in Pennsylvania. The liquidation order with a finding of insolvency triggers the limited protection offered by the applicable Guaranty Fund.
What this basically means is that the Guaranty Association will respond to the timely filed claims of an insolvent insurance company, as there is both a final date set by the liquidation court for the filing of claims, (which in this case is December 31, 2021) and under the individual guaranty fund statutes (generally whichever is less, but there are some variations of what constitutes a timely filed claim by a state). In addition, there are further statutory provisions that one must be aware of should they be a policyholder or have a claim against a policyholder of the insolvent insurer, or the insurer themself (i.e. vendor claims).
First and foremost coverage under the policies of the insolvent insurer terminates thirty days postliquidation unless the policy period expired prior to that date or was replaced prior to that date. In the case of Bedivere, coverage terminated on April 10, 2021. Claims that fall outside this coverage period will not be covered. The liquidation order posted on the Pennsylvania Insurance Department website provides some additional information accessible within their informational page for this insolvency.
Second, if the claim involves a first party claim against the insurer the Guaranty Fund will most likely be primary on it, unless there is other applicable insurance or other statutory provisions that come into play, such as high net-worth provisions or noncovered line of business. This also includes the continued payment of workers compensation benefits once the appropriate guaranty fund to respond is determined. Claims under covered policies will be paid up to the policy limits or the statutory limitation of coverage, whichever is lesser. Most guaranty funds have a coverage limit of $300,000 per claim with workers compensation having higher or no limit, if it is a covered line (for example: Ohio does not cover Workers Comp nor Excess Workers Comp). As soon as the claim files have been received by the guaranty fund, the fund will reach out to the insureds; and to the third party claimants.
In regards to third party claims, claimants will be advised by the guaranty fund to exhaust all other coverage, including but not limited to all uninsured motorist & underinsured motorist coverage, excess coverages, medical coverages, etc. However, claims for policy deductibles, such as a comprehensive or collision deductible for a third party will be honored by the guaranty fund once documentation of that deductible is furnished. All litigation is stayed for 180 days after the entry of the liquidation order to give the guaranty associations and the liquidator time to get up and running and the claim files distributed.
Another important point to make involving an insolvent insurer and guaranty funds is in regards to subrogation. All subrogation claims must be filed with the liquidator of the insolvent insurer, and not the guaranty association. Subrogation claims are not covered under the guaranty fund statutes. This applies to whether another insurer pays a claim they are subrogated to either pre or postinsolvency. Therefore, it is important to obtain from the liquidator a proof of claim, Even if the claim is filed as "contingent". The reason for this is all subrogation claims along with other secured and unsecured creditor claims will be considered prorata by the liquidator under the applicable statutory liquidation scheme by class should any distribution of estate assets be made in the future.
In addition, the guaranty associations have subrogation rights under the statute and will pursue those rights against other insurers, at-fault parties and tortfeasors. The guaranty associations basically steps into the shoes of the insolvent insurer in terms of the rights of the insurer, not only on claims but also for defense of lawsuits, etc.
Payment of an unearned premium claim due as a result of the termination of an insurance policy with an insolvent insurer will be paid as long as it meets a guaranty fund's statutory provisions for such claims. For example, the Ohio Insurance Guaranty Association does not pay any unearned premium claim that does not exceed one hundred dollars, or is more than $10,000. Unearned premium claims generally take a little longer to reach the appropriate guaranty fund as they are first calculated by the liquidator and then sent to the guaranty fund.
If one keeps these basics in mind, then navigating the insolvency process should be a little easier. The NCIGF also has some good insolvency related information on their website, as this is just a brief overview of guaranty fund basics. Sources: