What Happens When Your Insurance Company Becomes Insolvent?
You have the fair and reasonable expectation that when your property is damaged, your insurance company will be able to pay your claim. However, in some cases, that quite literally becomes impossible. While this is rare, it is an issue that needs to be considered, especially when you enter into litigation against an insurer, as legal cases can drag on for a considerable amount of time. An insurance company bankruptcy leads to a challenging situation for policyholders. After all, how can you collect your rightfully entitled settlement from a company that does not have any money? A recent case from Florida’s Fifth District Court of Appeal helps to provide an instructive answer to this question.
Morrison v. Homewise Preferred Insurance and Florida Insurance Guaranty Association
The Initial Dispute
The underlying lawsuit in the case stems from the fact that Ms. Morrison’s home was significantly damaged by a sinkhole. Fortunately for her, her homeowner’s insurance policy contained a provision providing for sinkhole damage coverage. However, when she went to file her damage claim with her insurer, the company, Homewise Preferred Insurance, denied her claim. As a result, Morrison was forced to file a breach of contract lawsuit against the insurer.
The Insurance Company’s Financial Trouble
As the sinkhole damage lawsuit dragged on, Homewise Preferred ran into some serious financial troubles. In fact, in 2011, a Florida judge ruled that the company was insolvent. The company was forced into receivership for the purposes of liquidation, and the Florida Department of Financial Services took control of the company. This means that the company’s remaining assets were set to be divided up among the company’s creditors and stakeholders. The process is extremely unlikely to leave much, if anything, for policyholders.
Insolvent Insurance Companies: The State Guarantees the Claim
Fortunately for policyholders, Florida law provides some protections against insurance company insolvency. More specifically, the Florida Insurance Guaranty Association (FIGA), established in 1970, is tasked with providing a backstop for these claims. FIGA will step in and cover any qualified outstanding claims that are still outstanding against the company.
Getting Recovery Can Still be Challenging
For those who are already in the process of litigation against an insolvent insurance company, obtaining financial recovery can still be difficult. This is true even although FIGA guarantees claims. Very strict legal procedures must be followed. In the case, Ms. Morrison needed to file a motion to have FIGA substituted as a defendant in place of the insolvent insurer. In some cases, courts enforce harsh time limits for when this substitution must occur. The bottom line is that if you find yourself in the situation, you need to consult with an attorney who can ensure that your claim proceeds in the proper manner.
Request Your Free Legal Consultation Today
At Geyer Fuxa Tyler, our team has helped many property owners recover the full and fair insurance settlement offers they rightfully deserve. If you need assistance with your claim, please call our firm today at (954) 990-5251. From our office in Sunrise, we serve home and business owners throughout Broward County, including in Fort Lauderdale and Miramar.