If your insurance company goes bankrupt in Louisiana, you still have options as a policyholder. The government might “bail out” your insurance company, saving it from insolvency. However, this is not standard for all bankrupt insurance companies.
One or more of the following could apply to you:
- Your insurance company might transfer your policy to another insurance company, where you could still proceed with filing a claim.
- The insurance company might have emergency funds that would continue paying claims even after it ceases operations.
- The government may liquidate the insurance company’s assets and use those funds to pay claims, or the Louisiana Insurance Guaranty Association (LIGA) may pay for certain expenses when your insurer becomes insolvent.
You Might Still Recover Benefits After Your Insurer Goes Under
The good news for Louisiana homeowners whose insurance companies have gone bankrupt is financial support could still be available. Once the insurance company files for bankruptcy, the state will place the firm into a receivership. Here, it can liquidate the company’s assets and use those funds to pay claims.
The Louisiana Insurance Guaranty Association still guarantees insured homeowners a degree of protection even when insurance companies cannot. Under the law, homeowners who are current on their premiums with a bankrupt insurance company are guaranteed to receive as much as $500,000 in payments despite the insurer’s insolvency. However, not all insurers belong to this association.
This is welcome news for homeowners, but for many people, $500,000 will only cover a portion of their damages. Still, in those situations, homeowners have options. For instance, they can partner with lawyers to understand the full scope of their options.
When Do Insurance Companies “Fail?”
Before the state can step in and place an insurance company into a receivership, the insurer must first become insolvent. What that means depends on a few different factors. Typically, insurance companies become insolvent when they are no longer able to pay claims.
Failed Insurance Companies Typically Lose Their Accreditation
In practical terms, insurance companies often fail when they lose their accreditation. Insurance carriers are accredited by an industry watchdog group known as Demotech. Demotech issues financial stability ratings for insurers based on the company’s ability to pay its claims. When an insurance company owes more than what its total assets are worth, it loses its accreditation.
When the Louisiana Insurance Commissioner determines that an insurance company has become insolvent, it has the power to file legal injunctions against the company in state court. These injunctions halt the company’s ability to sell insurance in the state, and it allows the commissioner to place the company into a receivership.
If the court agrees with the request, the state is empowered to sell off the company’s assets and use the funds to pay the backlog of homeowners’ claims.
Recent Insurance Company Failures in Louisiana
The failure of Louisiana insurance companies in the aftermath of a major hurricane is not unprecedented. In fact, two Louisiana-based insurers became insolvent in 2021 alone. This occurred in the wake of Hurricane Ida, which caused billions of dollars in damages across the state.
According to U.S. News & World Report, two insurance companies based in Louisiana were placed into receivership in November of 2021 after they became insolvent. Both State National Fire Insurance Company and Access Home Insurance Company lost their accreditation from Demotech in October of 2021. Shortly after, the state filed a petition to place both companies into receivership.
Together, the two companies represent around 1 percent of all homeowner policies in the state of Louisiana. These cases also represent the first time in two decades that the state has sought to place an insurance company into receivership due to its insolvency. Together, the two companies brought in a combined $20.5 million in premiums annually.
Two Insurers Are on the Brink of Failure
In addition to the two Louisiana-based insurance companies that failed, two more entities based in other states also face significant complications. The fourth-largest provider of homeowner insurance in the state, FedNat Holding Company, stopped renewing policies throughout Louisiana.
A fourth insurance company called America’s Insurance Company also lost accreditation. The state was unable to place either of these companies into receiverships, as they are not based in Louisiana.
What Could Happen After Filing a Claim with a Bankrupt Insurer in Louisiana
Filing an insurance claim is already complicated. Filing an insurance claim with a bankrupt insurer only makes matters more frustrating. Even though you’re entitled to certain protections in Louisiana, the insurer may claim:
- It doesn’t have to pay for your losses because there’s no money left.
- Your policy is void – even if you’re up to date on your payments.
- Another insurance company is responsible for your claim.
- You have to pay for your losses out of pocket.
When you partner with a lawyer, they can counteract any bad faith insurance practices that jeopardize your right to compensation. They can hold the insolvent insurer accountable for its promises and explore what other options you have.
Call the Law Offices of Anidjar & Levine for a Free Case Review
The thought of your insurance company going bankrupt in Louisiana after a hurricane could seem like the worst-case scenario. Yet, the state has procedures in place for those filing claims with defunct insurance companies.
We Can Help.