Insurance attorneys need to be able to discuss the Texas Guaranty Fund with their clients and how this fund works.
Four large insurance companies were declared insolvent in 2013, and as a result lawyers will have situations where a client has their insurance company become insolvent. The Texas Property and Casualty Insurance Guaranty Association (TPCIGA), was established in Chapter 462 of the Texas Insurance Code. Insurance companies do not file bankruptcy, they become insolvent. When an insurance company becomes insolvent or impaired, TPCIGA assumes the handling of the claims of the defunct insurance company. TPCIGA is a non-profit, unincorporated association of all Texas licensed property and casualty insurance companies. The Texas Legislature created the TPCIGA to provide protections to Texas insurance policyholders and claimants when an insurance company fails.
Chapter 462 states the TPCIGA must only pay “covered claims.” In general, a covered claim is an unpaid claim that arises out of a policy issued by an insolvent insurance company. The claim must be made by a Texas resident at the time of the insured event or must be a first-party claim for damage or property that is permanently located in Texas.
Claims that are not covered include, subrogation claims, adjustment fees, attorney’s fees, court costs, interest, and penalties incurred before an insurance company is determined to be an impaired insurer. Also, claims against the insured, insurance company, TPCIGA, the receiver, special deputy, or commissioner for recovery of punitive, exemplary, extra-contractual or bad-faith damages awarded in a judgment are not covered claims.
The Insurance Code limits the amount of recovery to the limits of the policy or $300,000, whichever is lower.
Section 462.251 prevents the duplication of recovery. This requires claimants to first exhaust their rights under the policies of solvent insurance companies. This includes a claim for benefits under policies of workers’ compensation, health, disability, uninsured / underinsured motorist, personal injury protection, medical payment, liability and other insurance policies.
In addition, any claim amount paid by TPCIGA is reduced by the full applicable limits of another insurance policy, and TPCIGA receives a credit in the amount of the full applicable limits of the solvent insurance policy. The liability of the person insured by the impaired insurer’s policy is reduced by the same amount. Thus, the maximum amount payable by TPCIGA is the damages incurred by the claimant, less TPCIGA’s credit, and the maximum amount payable may not exceed the lesser of $300,000 or the limits of the insurance policy under which the claim is made.
The Code, further limits claims subject to lien or subrogation. If a claimant seeks recovery of benefits that, had the impaired insurer not been insolvent, would be subject to lien or subrogation by any other insurer. If the amount subject to lien equals or exceeds the lesser of total damages or the limits of the impaired insurer’s policy, the offset cancels out any recovery. For example, where a claimant with $100,000 in damages recovers $50,000 in other insurance benefits subject to lien, the $50,000 credit is applied to the lesser of his $100,000 damages or the policy limit. If the policy limit is $25,000, the $50,000 credit excludes any further recovery. This is because Section 462.207 prohibits TPCIGA’s payment of any claim to an insurer, as subrogation or otherwise.
Finally, claims of assignees are not covered claims. This is pursuant to Texas case law. Thus, a plaintiff’s attorney must get an assignee to waive his assignment in order for the claimant to have a covered claim.
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