Insurance attorneys need to understand what can be done when an insurance company files for bankruptcy. To start with, when an insurance company becomes insolvent they do not file for bankruptcy, they become “insolvent.”
Companies that write insurance policies in Texas are heavily regulated, and the Texas Legislature has provided numerous safeguards to protect the public against an insurance company becoming insolvent. These regulations can be found in Title 4 of the Texas Insurance Code and Section 642.105 of the Texas Transportation Code. In connection with these statutory safeguards, there are additional safeguards there are further protections Section 1952 of the Texas Insurance Code. As an adjunct to this requirement, the Texas Property and Casualty Insurance Act provides further protection for the public against failure of licensed insurance companies as a result of insolvency.
The Act creates a Guaranty Association for the purpose of paying unpaid claims, including those of third-party liability claimants that arise out of and are within the insured’s coverage, but not in excess of the insured’s applicable policy limits. Covered claims are limted to $300,000.00 in value.
While the Act does provide the insured with a source for recovering damages that would be assessed against an uninsured motorist, the Act does not alter a solvent insurer’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, the Act provides:
A person who has a claim against an insurer under any provision in an insurance policy other than a policy of an impaired insurer that is also a covered claim shall exhaust first the person’s right under the policy, including any claim for indemnity or medical benefits under any worker’s compensation, health, disability, uninsured motorist, personal injury protection, medical payment, liability, or other policy.
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