Now that the fire is out, I expected to be done writing about this topic for the year. Alas, there has been another casualty of the fire, it is the Merced Property & Casualty Company.
Insurance companies receive premiums from their customers (policyholders) to insure against property loss, damage and other risks. Some victims of the Camp Fire, the worst wildfire in California history, will not have those claims fulfilled by Merced Property & Casualty Company.
According to the LA Times, as of December 3, 2018, a Merced County court, “gave California Insurance Commissioner Dave Jones permission to seize and liquidate the company’s assets. Now, the company is in the process of handing over policy and customer information to the California Insurance Guarantee Assn., or CIGA, which processes and pays claims on behalf of insolvent insurers.”
My understanding of the liquidation process is as follows: Merced Property & Casualty Company realizes they are in deep trouble, decide to skip bankruptcy, and ask the court to hand their operation over to the California Insurance Commissioner to clean up their mess. Per the LA Times, they have assets of roughly $23 million, but are expecting to pay out nearly three times that amount.
After policyholders fulfill their duty of paying premiums, they should expect to be insured against covered losses. As is often the case in mass disasters, insurance companies are ill-prepared and lack capital to fulfill their part of the bargain. Luckily for Californians, the taxpayers protect against such insurance company failures.
I reached out to one of our California insurance expert witnesses to get a better understanding of this insurance company liquidation.
Insurance Expert Witness Richard Masters
Richard Masters, CPCU, CIC, ARM, AAI, has more than 40 years of experience in the insurance industry. He is an expert on all aspects of property and casualty insurance and has testified in more than 200 trials in state and federal courts.
If you have a policy with Merced Property & Casualty Company, we hope this helps put your mind at ease. As I commonly do, I asked Mr. Masters several questions about the liquidation and he provided responses.
Nick: What happens when California regulators take over an insurance company?
Mr. Masters: They can either liquidate it or try to rehabilitate it. Rehabilitation usually involves getting another insurer to assume the book of business with the backing and help of CIGA. In the case of Merced I do not think it will be rehabilitated. First, I urge all customers of Merced to contact their insurance broker and immediately get a new insurance policy with a different carrier going forward.
Nick: Merced Property & Casualty Company didn’t even file bankruptcy. They claimed insolvency and are liquidating the company. What happens to the claimants?
Mr. Masters: The claimants will continue to make their claims with Merced and they should also contact CIGA to make a claim for benefits. CIGA can be contacted at 818-844-4300 or assistance@ciga.org. Make sure you have your homeowners or dwelling policy available. If you need to, contact your insurance broker to get copies of your policies.
Nick: There is some information that the California Insurance Guarantee Association. Is this like an FDIC for insurance companies?
Mr. Masters: Yes, that is a reasonable analogy. CIGA has three separate funds that they operate. The Merced collapse would involve the Homeowners Personal Lines fund. A liquidator will be assigned by CIGA and will administer the funds.
Nick: Will the claimants receive fractions of their claims as a result of this regulatory takeover?
Mr. Masters: Generally, CIGA will pay up to $500,000 for each claim but this depends on the terms of the policy and other factors determined by CIGA.
Nick: Any other information to provide to the public about the claims process through CIGA?
Mr. Masters: The claim process through CIGA is cumbersome and takes a LOT more time to complete. Claimants will need a lot of patience when dealing with CIGA.
In related news:
The ABA Journal reported today, “two law firms known for their class action practices have filed a new lawsuit that blames Pacific Gas and Electric Co. for the November fire that killed at least 88 people in Northern California and destroyed the town of Paradise.” Seven plaintiffs are jointly represented by The Edelson Law Firm and Lieff Cabraser Heimann & Bernstein.
This is just one of several suits blaming PG&E for negligently maintaining equipment which resulted in wildfires. It appears the plaintiffs have hit PG&E with a variety of claims including inverse condemnation, trespass, negligence, nuisance and more. One of the plaintiffs claims to be suffering from PTSD as a result of being stuck in traffic, while trying to flee the fire, and embers from fire-engulfed trees were hitting his car. He feared he “would be burned alive.” I might be suffering serious emotional distress as well.
Let us not forget, PG&E has already publicly stated that they may have to declare bankruptcy if it is determined they were responsible for the Camp Fire.
This is the last I will be writing about the Camp Fire for this year. However, given the continuing legal implications of this catastrophe, I expect issues of import will develop in the New Year.