What to Do If Your Insurance Company Fails

Insurance companies can have money issues just like any other business. The good thing is that most Texas insurance companies are members of a guaranty association that protect consumers by paying claims if their member companies fail.

A guaranty is a promise to pay money if one person or entity fails to do so. This term typically comes up in the context of insurance, banking, and finance.

No.

A guaranty association is an independent legal nonprofit created to serve as a safety net for insurance companies that are in financial trouble. Guaranty associations pay the claims while the state court and regulating agencies decide what will happen with the company.

No. Only licensed Texas insurance companies can join. Unlicensed companies are supposed to let you know in writing when they process your policy. Be careful. If they are not licensed, you might have trouble getting your claims paid down the road if they have financial issues.

No. Texas has three guaranty associations that work together to cover the various types of insurance.

• Life insurance, health insurance, and annuities are covered by the Texas Life and Health Insurance Guaranty Association
• Homeowners, auto, and workers' compensation insurance are covered by the Texas Property and Casualty Insurance Guaranty Association.
• Title insurance and escrow shortages are covered by the Texas Title Insurance Guaranty Association.

Health maintenance organizations (HMOs), surplus lines carriers, and multiple employer welfare.

No, but they all:

• provide support insurance companies in financial trouble
• work with state court and state insurance department
• pay claims within certain limitations for dollar amount, coverage limits, and benefit type (only if that benefit was guaranteed by the policy)
• encourage consumers to contact the court liquidator to request payment any balance left after the guaranty association helps with the claim
• have time limits on how old the claim can be when you file it.

Court-appointed liquidators notify all policyholders. You can also call Texas Department of Insurance (TDI) at 800-252-3439 Monday through Friday from 8 a.m. through 5 p.m. Central time. See Get help with an insurance complaint.

The process comes from Texas Insurance Code Chapter 463. As a warning, the state may use Texas Insurance Code 441.001 to order Commissioner of Insurance supervision for a certain time. If the company still does not do better, state court places the company in one of three programs:

• Conservation; to receive support to keep the company going
• Rehabilitation; to strengthen company management practices with the intent of returning to normal business operation
• Liquidation; court liquidator uses company assets to pay claims and debts as the company prepares to close.

The guaranty organization can choose to:

• use company assets to pay claims
• transfer policies to another Texas company, or
• work with an insurance company in another state who is willing to accept and manage the policies.

No.

It is like bankruptcy, but state courts and state insurance departments work together to investigate and decide what will happen to the company.

You will receive a proof of claim which protects your rights to payment for the balance. Then, they will offer to pay a certain amount of the claim which you can accept or reject. If you reject the offer, they might adjust it and if you still don’t like the amount, you can appeal to the court.

No. Texas Insurance Code 443.301 outlines the order in which the court pays all the people the insurance company owes. Each group is called a class and they go in this order:

• Class 1: Administrative costs and unsecured loans
• Class 2: Pending claims (this would include you)
• Class 3: Pending federal government claims not listed in class 2
• Class 4: Debts to employees that is over $5,000 or two months pay (whichever number is less). Money owed for work done within the last 12 months.
• Class 5: Claims from unsecured creditors not in classes 1–4
• Class 6: State and local government not already listed
• Class 7: State and local government penalty or forfeiture
• Class 8: Claims received after the cut off date
• Class 9: Claims related to the other categories
• Class 10: Interest on allowed claims in classes 1–9
• Class 11: Claims of share holders.

Even if you have several policies with the same insurer, the Texas Property and Casualty Insurance Guaranty Association will only pay up to the limits set by state law. More information about the limits can be found in Texas Insurance Code chapter 462.

First, try to get your claim paid by the company that is not in financial trouble. Then, you can request that the guaranty association pay the claim(s) according to any rules on claim limits.

There are guaranty associations that oversee all 50 states. The National Organization of Life & Health Insurance Guaranty Associations (NOLHGA) "coordinate[s] efforts among the state guaranty associations as they protect policyholders during insolvencies."

Texas guaranty associations only pay for policies of people who:

1. were Texas residents at the time of liquidation, or
2. have property permanently located in Texas.

All states have guaranty associations. So, if you move, contact the guaranty association in your new state.

No.

No. In Texas, most private employers can choose whether to buy workers’ compensation insurance. It’s optional, not required. Employers who decide not to buy a workers’ compensation policy are often called “nonsubscribers,” and they take on additional legal risks if a worker gets hurt.

Some employers choose to self-insure instead of buying a standard policy. When they do this as part of a self-insurance group, Texas law requires a safety net called the Self-Insurance Group Guaranty Fund.

The Texas Department of Insurance regulates self-insurance groups, and the Self-Insurance Group Guaranty Fund, which is a nonprofit association created by statute, is the entity that actually pays benefits when a group is declared insolvent.

Texas Labor Code 407A.355.