What Happens If My Insurance Company Goes Out of Business?

Insurance companies can fail. They can become insolvent — unable to pay their claims. In California, when an admitted insurer goes under, the California Insurance Guarantee Association (CIGA) steps in to pay covered claims. But the protections have limits, the process takes time, and not every policyholder qualifies. This article explains exactly what happens and what you need to know.

What Is CIGA?

CIGA — the California Insurance Guarantee Association — is a statutory entity created under California Insurance Code Sections 1063 through 1063.19. It is not an insurance company. It is a safety net funded by assessments on all admitted insurers doing business in California. When an admitted insurer is declared insolvent by a court and placed into liquidation, CIGA assumes responsibility for paying covered claims up to statutory limits.

What CIGA Covers

CIGA covers "covered claims" — claims that arose under policies issued by the insolvent insurer before the insolvency date. For homeowner claims, the key limits are:

• $500,000 maximum per claim for general property and casualty claims (Insurance Code §1063.1(c)(7)(A)); $1,000,000 for residential dwelling claims (§1063.1(c)(7)(C))
• $500,000 maximum for loss of use / additional living expenses claims
• (Note: California's CIGA covered-claim statute, §1063.1, does not contain a net-worth disqualification for residential property claims. A separate $300,000 figure that sometimes gets confused with CIGA is actually the per-life cap of the California Life and Health Insurance Guarantee Association (CLHIGA), a different organization governed by Insurance Code §1067 et seq. CLHIGA backs life and annuity policies, not property/casualty. Verify CIGA eligibility directly with CIGA.)

How to File With CIGA

When an insurer is declared insolvent, CIGA will send notice to affected policyholders. The process works like this:

1. A California court issues a conservation or liquidation order against the insurer
2. CIGA identifies pending claims from the insolvent insurer's records
3. CIGA contacts claimants and requests documentation (proof of loss, estimates, receipts)
4. CIGA assigns an adjuster to evaluate each covered claim
5. CIGA pays covered claims up to the statutory limits

If you have an open claim when your insurer becomes insolvent, gather all your documentation immediately: your policy, your dec page, all correspondence with the insurer, all estimates, all invoices, photographs, and any other claim-related records. Do not wait for CIGA to contact you. Be proactive. Call CIGA directly at (323) 782-0044 or visit their website.

The Timeline

CIGA operates under the same regulatory deadlines as any insurer — it must acknowledge claims within 15 days and accept or deny within 40 days once it has all needed information (Cal. Code Regs., tit. 10, Section 2695.7). In practice, the transition period creates delays. There is typically a gap between when the insurer stops paying claims and when CIGA is fully operational on the file. This gap can last weeks to months.

During this period, you may need to pay for emergency repairs, temporary housing, or other urgent expenses out of pocket. Keep all receipts. CIGA will reimburse covered expenses up to policy limits (subject to the $500,000 cap).

What CIGA Does NOT Cover

Several categories of insurance are outside CIGA's scope:

• Surplus lines (non-admitted) insurers: If your policy was issued by a surplus lines carrier — one not licensed in California but authorized to write specific risks — CIGA does not apply. There is no equivalent safety net for surplus lines in California.
• Self-insured entities: Employers or organizations that self-insure their risks are not covered.
• Claims exceeding the applicable cap ($500,000 general / $1,000,000 residential dwelling): Anything above the cap is an unsecured claim against the insolvent estate.
• Certain policy benefits: Punitive damages, penalties, and some extra-contractual damages are not covered claims.

How to Check If Your Carrier Is Admitted

The distinction between admitted and non-admitted (surplus lines) insurers determines whether CIGA protects you. Here is how to check:

1. Visit the California Department of Insurance website (insurance.ca.gov)
2. Use the "Company Profile Search" tool
3. Enter your insurer's name
4. Look for "License Status: Active" and "License Type: Admitted"

If your insurer is listed as "Non-Admitted" or "Surplus Lines," CIGA does not cover you. This is common for homes in high-risk wildfire areas that cannot obtain coverage from admitted carriers and must go to the surplus lines market.

The California FAIR Plan Is Different

The California FAIR Plan is an insurer of last resort for properties that cannot obtain coverage in the standard market. It is not the same as CIGA. The FAIR Plan is backed by all admitted insurers in California and is itself admitted — so if the FAIR Plan became insolvent (unlikely given its structure), CIGA would apply. But CIGA coverage limits would still cap your recovery at $500,000.

What You Can Do Now

Protecting yourself from insurer insolvency is straightforward:

• Confirm your insurer is admitted in California
• Check their AM Best rating and financial stability
• Understand CIGA caps: $500,000 for general property/casualty claims; $1,000,000 for residential dwelling claims — if your rebuild cost exceeds the applicable cap, you have exposure
• Keep copies of your policy, dec page, and all endorsements outside your home
• If you must use a surplus lines insurer, understand you have no CIGA safety net

For more on how homeowners insurance works and the different types of coverage available, review our introductory guides.

Your insurer's financial stability is part of your coverage. A policy from a company that cannot pay claims is not insurance — it is a piece of paper. Pay attention to who is backing your policy, not just what the policy says.

This article is for informational purposes only and does not constitute legal advice. Insurance policies and applicable law vary by state and by policy form. Consult with a licensed professional regarding your specific situation.