Pa. House Backs Bill Addressing Insurance Insolvencies

May 26, 2004

A bill that would reportedly assure that policyholders of insolvent insurance companies would have their claims paid according to the agreed-upon deductible amounts under their policies passed the Pennsylvania House unanimously today. Senate Bill 815 now moves to the Senate, where a concurrence vote is needed before the measure can be sent to the governor. The Senate returns the week of June 7.

“Passage of SB 815 is significant because it gives commercial consumers the benefit of their policy language with their former insurers,” said Neil Malady, regional manager and counsel for the Property Casualty Insurers Association of America (PCI), which strongly advocated support of the bill. “This bill will help resolve the large deductible dispute for all pending and future Pennsylvania insolvencies.”

Large deductible insurance typically covers workers’ compensation, commercial auto and general liability exposures of large commercial policyholders, written subject to deductibles typically of $25,000 or more per claim.

Senate Bill 815 establishes a statutory guideline that the large deductible portion of a commercial liability policy written by an insurer placed into liquidation by the insurance commissioner be paid by the policyholder to the guaranty fund paying the insolvent insurer’s claims, instead of being paid to the estate of the insolvent insurer. This clarification is necessary because of the Reliance and Legion insurance companies insolvenices in Pennsylvania.

Concerns have reportedly risen 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 reportedly 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.

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