by Joe Gregory and Chris Villa
As four large insurance companies were declared insolvent in 2013, practitioners need to reacquaint themselves with the Texas Property and Casualty Insurance Guaranty Association (TPCIGA), established in Chapter 462 of the Texas Insurance Code. When an insurance company becomes insolvent or impaired, TPCIGA assumes the handling of the claims of the defunct insurance company. TPCIGA is a non-profit, unincorporated association of all Texas-licensed property and casualty insurers. The Texas legislature created the TPCIGA to provide protections to Texas insurance policyholders and claimants when an insurance company fails.
Chapter 462 states that TPCIGA must only pay “covered claims.” In general, a covered claim is an unpaid claim that arises out of a policy issued by an impaired insurance company. The claim must be made by a Texas resident at the time of the insured event or must be a first-party claim for damage to property that is permanently located in Texas.
Chapter 462 also defines claims that are not covered. Subrogation claims are not covered claims. Adjustment fees, attorneys’ fees, court costs, interest and penalties incurred before an insurer is determined to be an impaired insurer are also not covered claims. In addition, pre-judgment or post-judgment interest accrued after an insurer is determined to be an impaired insurer is not a covered claim. Further, a claim against the insured, insurer, TPCIGA, receiver, special deputy receiver or commissioner for recovery of punitive, exemplary, extra-contractual or bad-faith damages awarded in a judgment is not a covered claim.
The Insurance Code limits the amount which can be paid as a covered claim. An individual covered claim may not exceed $300,000 or the limits of the insurance policy under which the claim is made.
Section 462.251 of the Texas Insurance Code prevents the duplication of recovery. That section requires claimants to first exhaust their rights under the policies of solvent insurers. If a claimant has a claim under a policy other than an impaired insurer’s policy, and the claim arises from the same facts, injury, or loss giving rise to the claim under an impaired insurer’s policy, the claimant must first exhaust its rights under the solvent insurance policy. This includes a claim for benefits under policies of workers’ compensation, health, disability, uninsured/underinsured motorist, personal injury protection, medical payment, liability or other insurance policies.
Moreover, any claim amount paid by TPCIGA is reduced by the full applicable limits of another insurance policy, and TPCIGA receives a credit in the amount of the full applicable limits of the solvent insurance policy. The liability of the person insured by the impaired insurer’s policy is reduced by the same amount. Thus, the maximum amount payable by TPCIGA is the damages incurred by the claimant, less TPCIGA’s credit, and the maximum amount payable may not exceed the lesser of $300,000 or the limits of the insurance policy under which the claim is made.
The Insurance Code further limits claims subject to lien or subrogation. If a claimant seeks recovery of benefits that, had the impaired insurer not been insolvent, would be subject to lien or subrogation by any other insurer (such as a workers compensation insurer or health insurer), TPCIGA’s credit is deducted from the lesser of the damages incurred by the claimant or the limits of the policy under which the claim is made. Moreover, if the amount subject to lien equals or exceeds the lesser of total damages or the limits of the impaired insurer’s policy, the offset cancels out any recovery. For example, where a claimant with $100,000 in damages recovers $50,000 in other insurance benefits subject to lien, the $50,000 credit is applied to the lesser of his $100,000 damages or the policy limit. If the policy limit is $25,000, the $50,000 credit excludes any further recovery. This is because Section 462.207 of the Texas Insurance Code prohibits TPCIGA’s payment of any claim to an insurer, as subrogation or otherwise. Latter v. Autry, 853 S.W.2d 836 (Tex. App.—Austin 1993, no writ).
Finally, claims of assignees are not covered claims. In Carney v. TPCIGA, 354 S.W.3rd 843 (Tex. App.—Austin 2011, pet. denied), the court held that the claim of an assignee that is neither an insured nor a third party claimant does not meet the definition of a “covered claim” under the Guaranty Act and, thus, is not payable by TPCIGA. Thus, a plaintiff’s attorney must get an assignee to waive his assignment in order for the claimant to have a covered claim.