If you don’t follow my advice here and on the personal injury podcast about buying insurance, you may buy insurance with the cheapest insurance company. That company may go “bankrupt,” or, in insurance terms, “into receivership.” If that happens, and you have a claim, who pays?
California has the California Insurance Guarantee Association. Look on your premium statement and you pay some money to them every year. CIGA pays for claims when an insurance company cannot. From CIGA’s website, some FAQs:
What is CIGA?
CIGA, the California Insurance Guarantee Association, is a statutory entity whose scope and authority the Guarantee Act governs. Established in 1969 as a compulsory association requiring State regulated insurance companies to be members, CIGA consists of three separate funds that guarantee different lines of insurance:
- Workers’ compensation
- Automotive/Homeowners Claims
- Other than workers’ compensation, automobile & homeowners (commercial property, commercial liability, products liability, environmental & pollution)
(See Section 1063.2 of the California Insurance Code for claims that are not covered.)
Is CIGA an insurance company?
CIGA is NOT an insurance company. CIGA’s sole duty is to pay what is defined in the California Insurance Code § 1063.1 and 1063.2 and by case law as “covered claims.” CIGA was created to provide only a limited form of protection in the event of insurer insolvencies.
Does CIGA cover everything?
It is important to note that CIGA does not provide protection for the following classes of insurance:
- Life, Annuity, Disability, and Health (The California Life and Health Insurance Guarantee Association covers these.)
- Fidelity and Surety (including fidelity or surety bonds or any other bonding obligations)
- Ocean marine
How is CIGA triggered?
In order for CIGA to become responsible for the claims liabilities of a member insurer in California, a court of competent jurisdiction must issue a liquidation order with a finding of insolvency of the insurer.
CIGA has no access to the troubled carrier prior to liquidation; it has no power, obligation, or authority to start reviewing or handling claims of the insolvent insurance carrier until there has been a court ruling declaring the insurance company insolvent and a liquidation order issued.
Please note that when CIGA is triggered, CIGA does not have direct access to the assets of the estate. CIGA actually becomes a creditor against the estate. So, in other words, the Department of Insurance or a court-appointed liquidator controls the assets.