Builders and Contractors Exchange
Weekly Bulletin: 23 May 2005
Limited Protection From The Insolvent Insurance Carrier
By: Tom Berkley
The Virginia General Assembly established the Virginia Property and Casualty Insurance Guaranty Association (VPCIGA) to provide limited protection to individuals from the insolvency of insurance carriers. While this state-created mutual fund offers assistance to the insured or the injured party, it does not step into the shoes of the insolvent insurance company and operates much differently. For example, an insured or injured party must first exhaust all other available solvent insurance before seeking any funds from the VPCIGA. Therefore, if the primary carrier becomes insolvent, one must notify any excess carrier or carriers that they potentially face primary status for the claim. In the case of personal injuries and torts, the exhaustion requirement sometimes forces the injured party's insurance carrier to pay the claim without a right of subrogation. Exhaustion means one must use the entire coverage limits from all solvent carriers. Any solvent carrier that refuses to cooperate with a claim runs the risk of losing its license to sell insurance in the Commonwealth of Virginia.
If an individual's damages exceed the coverage limits from all solvent insurance carriers or no solvent insurance exists, then the VPCIGA will defend or pay a claim. The exhaustion requirement, however, is not the only thing that makes the VPCIGA different from insurance carriers. In most cases, the VPCIGA only provides coverage of the lesser of $300,000.00 or the coverage provided by the insolvent carrier. This limit does not apply to worker's compensation claims. On the other hand, the VPCIGA also has exclusions for its coverage. It does not, among other things, provide coverage for surety bonds, insurance of warranties, and title insurance.
If you believe that you may need assistance from the VPCIGA, you need to notify them immediately. The VPCIGA has the power to stay litigation for six months in order to protect your interest and determine the priority of any solvent insurance carriers. If the VPCIGA eventually pays for a claim, it will seek the deductible allowed by the insolvent carrier's policy. And, if the insured has a net worth greater than fifty million dollars, the VPCIGA may seek a complete reimbursement from the insured.
Questions?
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.