by Iris Forester

Created on: December 03, 2008   Last Updated: December 12, 2008

We look to insurance companies to protect our interests when we suffer certain kinds of misfortune. But what happens when the insurance companies themselves go bankrupt, or go out of business altogether?

In California, there is a public Department of Insurance , or CDI, which protects the insurance consumer and regulates all insurers which operate within the state.

Contacting the CDI would be the first step for a consumer if an insurance company is not paying claims, due to its own insolvency. At the CDI website, consumers can send in an online Request for Assistance form. The website also maintains a Consumer Hotline, with a toll-free number available during business hours.

This hotline provides support for almost any type of complaint or problem relating to insurance companies. In addition to situations of unpaid claims, you can report policy cancellation, rate and premium problems and miscellaneous disputes over coverage.

The bankruptcy of an insurance company is not a common problem, but it's reassuring to know that in instances where it does happen, the consumer's interests are protected.

The California Department of Insurance has a Conservation and Liquidation Office (CLO). This office manages the affairs of insolvent insurance companies, and maintains a current list of these companies. If a company is liquidated, a notice will be issued by the Insurance Commissioner giving a final claims filing date. Any person with a claim against the company must file proof of their claim before that date. Also, all policyholders will receive a 30-day notice that their policies are terminated.

Since most insurance companies which go out of business owe more in claims than they have assets to cover, the state has set up two guarantee associations: The California Insurance Guarantee Association (CIGA) and the California Life & Health Insurance Guarantee Association (CLHIGA).

Between these two associations, most types of insurance are covered. The only categories of insurance which are not covered are disability, and managed-care health insurance (HMO's). If an insurance company becomes insolvent, and is ordered into liquidation, the guarantee association handling its case will notify all policyholders, and will review and pay all claims pending. CIGA does set a claim limit of $500,000., but this does not apply to Worker's Compensation claims.

If a claim is not covered by one of these associations, or if it is in excess of that claim limit, then the claim will be administered

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