The Property Casualty Insurers Association of America lauded the Pennsylvania’ Senate’s passage of legislation, S.B.815, assuring that policyholders of insolvent insurance companies in the state would still pay for claims according to the agreed-upon deductible amounts under their policies.
The measure, which would also clarify state law that insurance guaranty funds will not have any more liability than insolvent companies would have had if they had remained in the black, passed by a 47-2 vote last week and now heads for the House for consideration
“SB 815 provides a badly-needed guide to the complex financial side of commercial insurance programs,” stated Neil Malady, PCI regional manager and counsel. “The bill is important because it gives policyholders of the insolvent companies the benefit of their policy language with their former insurers. Policyholders would pay only the amount specified under the deductible that they agreed to with their insurers.”
The PCI noted that the “bill would fully resolve the large deductible dispute for all pending and future Pennsylvania insolvencies. At issue are concerns about who is entitled to the benefit of deductible reimbursements, collateral and payments by policyholders under large deductible policies when an insurer becomes insolvent. The guaranty associations believe that, to the extent they pay claims, they should receive the same benefits that the insolvent insurer would have received under the large deductible arrangements. The bill ensures that guaranty associations are treated the same way that the insolvent insurer would have been treated on the large deductible exposure— requiring the deductibles to follow the large deductible policies. The Insurance Department believes these benefits are an asset of the estate, and should benefit all creditors — even when the guaranty funds pay the underlying claims subject to the reimbursement.”
The measure’s importance is underlined by the recent insolvencies of two carriers that wrote considerable amounts of large deductible business— Reliance Insurance Company, which is in liquidation, and Legion Insurance Company, which is in rehabilitation. Large deductible insurance typically covers workers’ compensation, commercial auto and general liability exposures of large commercial policyholders, written subject to deductibles typically of $250,000 or more per claim.
“The most desirable outcome in these insolvencies is for guaranty fund costs to be minimized so that the final cost to automobile and homeowner policyholders, who are supporting the guaranty funds, is minimized,” Malady concluded.
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