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What Happens When Your Insurance Company Goes Bankrupt Or Is Insolvent?


It seems that every day in the news, there is another insurance company going bankrupt or insolvent. In some cases, there may not be another insurance company to just step in the place of your old insurance company. So what happens when your homeowner’s insurance company is bankrupt or insolvent?

FIGA to the Rescue?

The answer is a state run and operated insurance company, called the Florida Guarantee Association, or FIGA. FIGA will step in the shoes of your insolvent insurance company and pay any claims that the insurance company should have paid, but now cannot because it is bankrupt.

If your insurance company does go under, the state will collect their assets, and add those assets to a pot of money used to pay pending or future claims against that insurance company for its policyholders.

There will be deadlines to make claims with FIGA; the state maintains a website giving deadlines to make claims for any company that has gone under. FIGA will pay any claims according to the policy that you had with your now-defunct insurance company.

To use FIGA, your former insurance company needs to be one that is part of the state’s association guarantee system; most major insurers are, but some self-insurance or insurance that doesn’t have to be part of the system, or surplus lines of insurance may not be.

Limitations on FIGA

But it is not as easy as FIGA just paying what your old insurance company would have paid, because FIGA’s claim limits are capped at $300,000 (that amount is higher for homeowner’s associations). FIGA will add $200,000 if your home has major structural damage. These caps apply to residential and commercial property damage, assuming you were originally insured for both.

Be aware that these are maximum caps FIGA will pay—they still can, and often will, contest your claim, or dispute the extent of your damage, the same way any insurance company would.

FIGA is also not a permanent solution; it will usually only provide coverage for 30 days after your old company went out of business. That’s fine for pending or already filed claims, but FIGA is not a long term, permanent insurance solution.

FIGA will usually pay actual cash value of your damages at first, but will pay the replacement costs, once you demonstrate you have actually replaced the damaged portion of your home.

Additionally, because FIGA is funded through liquidating insurance company assets, claims may not be paid as quickly as they would through a private insurance company.

If FIGA is providing liability coverage for you, and you are being sued, you will work with FIGA just as you would your own insurance company FIGA will adjust and evaluate the claim, and provide a defense for you in any lawsuit.

Questions about suing your insurance company? Contact the Miami property damage insurance attorneys at Velasquez & Associates P.A.




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