Nov. 8, 2018, began as a beautiful, sunny day for the residents of Paradise, Calif., a small town in rural Northern California. Within hours, most of the city was gone, with over 18,000 structures destroyed in the deadliest, most destructive wildfire ever to hit the state.
But there was one nightmare none of the residents of Paradise could have imagined, and no matter where you reside in the United States, what they are going through right now — their same fate — could be yours if you make one serious mistake.
Within days of the fire, a small regional insurance carrier that had policies on many Paradise properties announced that it was insolvent and was immediately placed into conservatorship by the California Department of Insurance. It had $23 million in assets and about $65 million in likely claims.
Now, does this mean that the people who were insured by Merced wound up with nothing? “No, because when an admitted insurance company (like Merced) is found insolvent, policyholders have some protection by the California Insurance Guarantee Association,” explains Los Angeles-based insurance broker Karl Susman, who also testifies as an expert witness on complex insurance cases.
“An ‘admitted’ or ‘licensed’ insurance company must file its rates and specific requirements with state regulators and cannot change them without authorization.
“All admitted property carriers are required to participate in a state’s Insurance Guarantee Association, and all states, Washington, D.C., and Puerto Rico have one. So, in the event that an admitted company declares bankruptcy, or depletes its reserve of funds — the association steps in to pay policyholders up to the specified limit of, for example, $500,000 in California,” Susman points out.
“Buying insurance from an admitted carrier also allows policyholders to file a complaint with their state’s department of insurance if they believe a claim has been handled improperly.
“Sadly, in Paradise, there were homes whose value far exceeded that amount. If they were insured by Merced, it truly is a tragic situation.”