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Here’s What Happens When Your Insurance Company Files for Bankruptcy


We all know that companies go out of business all the time. But insurance companies? Those are pretty safe bets. They have plenty of capital-and some have reinsurance, which is basically insurance for insurance. So insurance companies would never go out of business.

But they do. And if it’s your insurance company that goes under, what happens next?

Are You Safe?

You may think that your insurance company is safe, because you are insured in a relatively safe “smaller claim” industry. For example, business interruption insurance can lead to decent sized claims, but generally, there aren’t that many catastrophic claims at one time, that would cause an insurance company to go out of business.

But what you forget is that the insurance you have for errors and omissions, or business interruption, or your renters insurance, is often provided from the same company that does insure major, catastrophic damage claims—for example, homeowners insurance claims.

And when you turn on the news and hear about an insurance company going under and into bankruptcy after, say, a hurricane, often, they bring the smaller business-related coverages down with it.

FIGA to the Rescue?

Of course, people can’t just be completely uninsured, especially when they have paid for a policy, and did nothing wrong to cause their insurance company to declare bankruptcy. That’s why the state maintains, runs and operates the Florida Insurance Guarantee Program, or FIGA. When an insurance company files for bankruptcy, FIGA steps in.

How does the state pay for this? Well, you do, in a way. All Florida insurance companies contribute to the costs associated with FIGA, and they pass those expenses along to you, through your premium.

In the event of a bankruptcy to your insurance company, FIGA will take over, and give you the same coverage your old insurance company provided, along with abiding by all the other provisions of your former policy—including denying claims under any exclusions that you had. In other words, FIGA won’t provide you any more coverage that you had under your old, bankruptcy insurance company.

But it may provide you less. That’s because there is a $300,000 maximum policy limit on FIGA claims. So if your old policy was for more than that, you may have a problem, if you have a larger claim while insured by FIGA.

Limitation on Using FIGA

That shouldn’t be a huge problem though, because you only have 30 days to stay on FIGA. That means that you have 30 days to procure “real” coverage from an actual insurance company. After that 30 days, FIGA will no longer insure you-which could be a problem for more than insurance coverage reasons.

Many commercial leases, mortgages, and other contracts require you to carry valid insurance. Allowing FIGA to expire, without replacement, could lead to more legal problems than just a bankrupt insurance company.

Questions about insurance or other parts of your business? Call our Fort Lauderdale business lawyers at Sweeney Law P.A. at 954-440-3993 today.




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