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What to Do If Your Insurance Company Is Failing


Sometimes insurance companies have money problems. Discover how that affects you and what do to do to get your claims paid.

When insurance companies fail, policyholder claims are in jeopardy. Associations exist that work with the companies to pay claims and to help transition policyholders to companies that are in good standing.

This article is adapted from content originally excerpted from the website of the Texas Department of Insurance.

If my insurance company fails, what happens to my claims?

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. 

Is the guaranty association a state agency?


What is a guaranty association?

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.

Are all Texas insurance companies members of a guarantee associations?

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.  

Does one guaranty association handle all the different types of insurance?

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

What types of organization are not covered by guaranty associations?

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

Do all three guaranty associations operate the same way?

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

How do I know if my insurance company is in trouble?

Court appointed liquidators notify all the policy holders. You can also call Texas Department of Insurance (TDI) at 800-252-3439 Monday to Friday from 8 a.m. to 5 p.m. Central time.

How does the state court and the guaranty association take control of the insurance company?

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

How long does it take for the guaranty association to take over the company in trouble?

30-45 days

What happens to the current policies once the guaranty association takes control?

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

Do I need to do any additional paperwork while the transfers are happening?


What does it mean when the state court puts an insurance company in liquidation?

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

What happens when I file my claim with the court liquidator?

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.

During liquidation, do they pay the customer claims first?

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

What if I have more than one claim from my insurance company?

There is a limit on how much the guaranty association will pay a person with more than one policy from one company.

What if I have multiple claims from multiple companies?

First, try to get your claim paid from 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.

Who takes over if an insurance company is in trouble in more than one state?

There are national guarantee associations that oversee all 50 states. They will assign a task force to come up with a plan.

Am I still covered if I left Texas since I started my policy?

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 guarantee associations. So, if you move, contact the guaranty association in your new state.

Does the guaranty association have a limit on how much they pay for worker’s compensation claims?


Do all Texas businesses have to buy worker’s compensation insurance?

No. Worker’s compensation insurance is optional and Texas companies that refuse to buy insurance policies form their own guaranty funds. For self-insured employers and groups, the Texas Department of Insurance (TDI) has information about Self-Insurance Guaranty Fund and a Self-Insurance Group Guaranty Fund.

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