Your Insurer Is In Receivership – Now What? Receiverships in North Carolina

Some sectors of the insurance industry, like the property market, for example, have sustained significant financial losses that have resulted in an uptick in the number of insurance companies being ordered into receivership. 

This article provides a basic overview of the receivership process in North Carolina.

Initiating a Receivership

In North Carolina, a receiver is appointed to properly control, preserve, and settle the property and assets of an insolvent insurer. Generally, the insurance company is put into a "rehabilitation" phase first. In this phase, the receiver tries to fix the situation for the company (i.e., works to help the insurance company overcome its financial difficulties and meet its obligations). If the insurance company fails the rehabilitation phase, the receiver places the company into the "liquidation" phase.

Once the insurance company is in the liquidation phase, the receiver must assess the company's assets and debts and distribute the company's remaining assets in the order dictated by law. The receiver is also required to notify all current policyholders of their insurer's receivership.

Filing Claims in Receivership

After receiving notice, individuals with valid claims against the insurance company may file those claims. Claimants typically have two routes available to them under North Carolina law for pursuing claims. They may (1) file a claim with the receiver and/or (2) file a claim with the North Carolina Insurance Guaranty Association ("NCIGA").

In instances where the insurance company's home state (i.e., the state that gives the company its primary licensing and where the company is "domiciled") is a state other than North Carolina, whether a claim can be filed with the receiver requires looking to the home state's laws applicable to the receivership process. Generally speaking, the process of filing a claim with the receiver often entails a limited timeframe in which to file a claim (otherwise, the claim will be time-barred). Further, because a receivership is essentially a bankruptcy proceeding and the receiver can only satisfy claims against the insolvent insurance company to the extent that the company has funds/assets available, payments of individual claims are on a pro-rata basis.

If you are a policyholder who resides in North Carolina or owns property insured in North Carolina, you may also be eligible to file a claim with the NCIGA. The NCIGA is a nonprofit, unincorporated legal entity created by Chapter 58, Article 48 of the North Carolina General Statutes (the "Guaranty Act"). Section 48-58-5 of the Guaranty Act explains the purpose of the NCIGA: "to avoid excessive delay in payment," "to avoid financial loss to claimants or policyholders because of the insolvency of an insurer, to assist in the detection and prevention of insurer insolvencies," and "to assess the cost of such protection among insurers." Essentially, the NCIGA steps in when an insurance company enters into the "liquidation" phase of a receivership.

The NCIGA is a resource for North Carolina policyholders that can provide protection against some of the consequences when an insurance company is in receivership. By way of example, it affords claimants who have suffered significant losses a potential route to recover those losses, even after their insurance company has been liquidated. However, the Guaranty Act imposes several requirements to qualify for a recovery from the NCIGA. For example, a policyholder must have a valid "covered claim," as defined by the Guaranty Act. Further, the Guaranty Act also imposes various limitations on a claimant's recovery, including a statutory cap of $300,000 on the amount of recovery for a valid claim. As these limitations can serve to limit or bar a claim altogether, having an awareness and understanding of these limitations is important to navigating the claim and recovery process under the Guaranty Act.   

Pending Litigation Prior to Receivership

When a policyholder has litigation pending in North Carolina against an insurance company, and that company goes into receivership, an automatic 120-day stay is placed on the litigation. Typically, the NCIGA becomes a party to the case in place of the insolvent insurer. In terms of pursuing a claim with an out-of-state receiver when a policyholder has litigation pending in North Carolina prior to its insurance company going into receivership, the policyholder may be able to file a claim with the receiver (again, the home state's laws will come to bear on the claims process).   

Learning that your insurance carrier is in receivership can be scary and overwhelming, and navigating the claims process where a receivership is in play is not without its legal pitfalls and challenges. Ward and Smith's Insurance Counseling and Recovery Team can help assess what rights and remedies may be available when a carrier goes into receivership.

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© 2024 Ward and Smith, P.A. For further information regarding the issues described above, please contact Taylor Rodney Marks or Allen N. Trask, III.

This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.

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