by Sharon Cullars

Created on: November 29, 2008   Last Updated: January 24, 2009

When an insurer fails, a policyholder's best avenue to satisfy a claim is to seek out a state's guarantee fund. Various funds are set up and regulated by state laws and offer security for holders of life, health, automobile and home insurance policies. California has its own guarantee fund that provides protection to claimants in the case of insurer insolvency. However, there are limits to how much a claimant can recover as well as the particular policies that are covered.

If you have a claim with a California insurer that is now insolvent or facing impending bankruptcy, you may still collect on that claim if your insurer is a member of the California Insurance Guarantee Association (CIGA). CIGA consists of three separate funds that guarantee particular lines of insurance including worker's compensation, personal lines (auto, homeowners, personal liability) and other (commercial lines: commercial property, commercial liability, products liability, environmental & pollution)

CIGA steps in to handle claims once the insurer is adjudicated insolvent by a court and forced to liquidate. At that point, either the liquidator, who is the company's receiver, or CIGA will notify all claimants as to their rights upon liquidation. If you receive notice, you should contact CIGA immediately and forward a copy of the claim and any lawsuit based on that claim. The deadline to submit any type of claim to CIGA is often the fixed date for Proof of Filing with the liquidator. Even if CIGA receives the claim before the deadline, benefits may be delayed due to the volume of claims CIGA has to review. If you are not sure whether your insurer is a member of CIGA, phone or email them through the contact information at their website at www.caiga.org.

Note that CIGA is not an insurer and does not provide protection for the following classes of insurance: Life, Annuity, Disability, and Health (see following paragraph on California Life & Health Insurance Guarantee); Title; Mortgage; Fidelity and Surety; or Credit.

The California Life & Health Insurance Guarantee Association guarantees insurers licensed to sell life insurance, health insurance and annuities. If a member of the association is adjudicated insolvent and forced to liquidate, the association processes the outstanding claims. You can consult the association's website where they provide a list of insolvent California insurers whose policyholders the association has been activated to protect. If your company does not appear on the list, you can still contact the association to determine if your insurer is a member and whether you have any rights protected by the association. You will find contact information at www.califega.org.

Whether you can collect on a car insurance claim in a case of insolvency depends on whether the insurer is licensed and approved to do business through the California Department of Insurance. California strictly regulates auto insurance sales, so any policyholder under an approved insurer is guaranteed protection under the state's statutes. A claimant can then recover any outstanding claims or get reimbursement for any unearned premiums paid to the insolvent insurer.

No matter what type of policy you hold, it is always best to investigate the various state guarantee funds to make sure that your claims are protected in case your insurer goes bankrupt. Foresight is the best insurance.

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