What If Your Insurance Company Goes Out Of Business?

Here is a question a resident of Mansfield, Grand Prairie, Arlington, De Soto, Hurst, Benbrook, Burleson, Fort Worth, or any other city in Texas might ask. What happens if my insurance company goes bankrupt?
First of all, insurance companies that have financial problems do not go into or declare bankruptcy. Financially insolvent insurance companies go into receivorship. The Texas Insurance Code, Section 443.004, defines receivorship as any liquidation, rehabilitation, or ancillary conservation.
Companies that write insurance policies in Texas are heavily regulated, and the Texas Legislature has provided numerous safeguards to protect the residents listed above against insurance company insolvency. The Texas Property and Casualty Insurance Guaranty Act is found in the Texas Insurance Code, Chapter 462. Also see, Texas Transportation Code, Section 643.105. (This section 643.105, deals with commercial carriers on the highway such as the companies that insure 18-wheelers) In connection with these statutory safeguards, Article 5.06-1 of the Texas Insurance Code requires the definition of “uninsured motorist” to include a vehicle for which the liability carrier is or becomes insolvent. Furthermore, the Texas Property and Casualty Insurance Act provides further protection for the public against failure of licensed insurance companies as a result of insolvency.
This Act creates a Guaranty Association for the purpose of paying unpaid claims, including those claims which are the fault of other people, known as third parties, that arise out of and are within their coverage. The liability of the Guarantee Association is still limited by the limits these third parties had on their insurance policys. This is addressed in Sections 462.002, 462.007, 462.008, and 462.305. Another limitation is found in Section 462.213. This section limits covered claims to $300,000.
While the Texas Property and Casualty Insurance Guaranty Act does provide the insurance policy holder with a source for recovering damages that would be assessed against an uninsured motorist, the Act does not alter a solvent insurance company’s obligation to pay UM/UIM coverage, and, in fact, requires the insured to first exhaust UM/UIM coverage that may be available under his or her own policy. In this regard this is further discussed in Sections 462.251, 462.252, 462.253, and 462.254.
More information about situations where an insurance company is declared insolvent and goes into receivorship can be found with the Texas Department of Insurance or an experienced Insurance Law Attorney can be helpful in working through the situation.