Ensuring your insurance company pays up
Early in my career, while waiting in a district court for my case to be called, I overheard and exchange at the bench between two attorneys and the judge. The case evidently involved the interpretation of an insurance policy. After listening to a few minutes of argument, the judge turned to the unfortunate insurance company attorney and said, “I have read through this policy, and I do not understand it. You work for the insurance company, and you do not understand it. How in the world is a consumer supposed to understand it? You people need to get your act together.”
I always remember that judicial scolding when I have a case involving an insurance company.
Insurance policies since then have gotten a bit more reader-friendly. “Party of the first part” has been replaced by “you.” “Whereas” and “heretofore” seldom show up. Definitions are contained in one section instead of being sprinkled throughout.
This change was not spontaneously done as an act of kindness by the insurance companies. It was forced upon them by states enacting a version of the model Insurance Policy Language Simplification Act. Texas implemented its version through insurance regulations.
You pay insurance premiums in exchange for an assurance that you will be reimbursed by the insurance company in case of a loss. For that to happen, the insurance company must have the money on hand to pay you.
Insurance companies carry ratings on how likely they are to remain solvent and pay out on claims. There are several ratings companies. The best known are AM Best Co, Fitch Ratings, Moody’s Investor Service, Inc., Standard & Poor’s and Weiss Ratings. You should always check out an insurance company’s rating before buying their products.
If an insurance company does fail and is unable to pay its claims, and you are a Texas resident, then you may have recourse to a guarantee association. These are nonprofit companies set up by state law to protect insurance policyholders when an insurance company becomes insolvent.
There are different guarantee associations for each kind of insurance. The Texas Life and Health Insurance Guarantee Association covers life insurance, health insurance and annuities. The Texas Property and Casualty Insurance Guarantee Association covers homeowners, auto and workers’ compensation insurance. The Texas Title Insurance Guarantee Association covers title insurance and escrow shortages.
Only licensed insurance companies are covered by the guarantee association. When an insurance company fails, the association either continues the insurance policy coverage, including paying the claims and other policy benefits, or transfers the policies to another insurance company. If a claim is not totally covered by the guaranty association, then you may need to go back to the receiver handling liquidation of the insurance company and file a claim.
Insurance agents are prohibited from telling you about the guarantee associations when they sell you insurance.
Guarantee associations should be a last recourse for consumers. The key is not to do business with a shoddy agent or company in the first place. The Texas Department of Insurance has tools on its website to verify the licenses of insurance agents, adjusters, agencies and companies. The website also contains a list of companies authorized to sell insurance in the state of Texas.
The National Association of Insurance Commission website has links that allow you to research insurance companies and get reports on complaints, financials and licensing.
An insurance policy is merely a contract with the insurance company. Don’t do business with one that is not reputable.
Virginia Hammerle graduated from SMU law school four decades ago. She is board-certified in civil trial law and an accredited estate planner. For more columns, see her blog at hammerle.comor sign up for her newsletter at [email protected]. This column does not constitute legal advice.
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