When Your Insurer Goes Insolvent: CIGA Explained

Insurance companies can fail. They can become insolvent — unable to pay claims they owe. Most policyholders assume their insurance company will be there when they need it: you pay your premiums, you file a claim, and the insurer pays. That is how it is supposed to work. But what happens when the insurance company itself runs out of money, is seized by regulators, and can no longer pay?

It happens more often than most people realize. And in California’s current insurance market — where carriers are fleeing the state, non-renewals are surging, and wildfire exposure is reshaping the entire industry — the risk of insurer insolvency is not theoretical. It is a real and growing concern.

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 what happens when a California property and casualty insurer goes insolvent, how CIGA works, what it covers and what it does not, and what you might consider doing — both before and after an insolvency — to protect yourself.

Quick Answers: What Happens If My Insurance Company Goes Out of Business?

Before going deep on the mechanics, here are the plain-English answers to the questions most California policyholders ask first.

Will I lose all my coverage if my insurer fails?

If your insurer is admitted in California, CIGA — the California Insurance Guarantee Association — takes over covered claims when a court orders the company into liquidation. You do not lose protection on a pending claim simply because the company went under. You do, however, lose the policy itself: all policies issued by the insolvent insurer are cancelled, typically with 30 days’ notice, and you will need replacement coverage right away.

Who pays my claim after liquidation?

CIGA does, for covered claims, up to the statutory caps. CIGA is not an insurance company. It is a not-for-profit, unincorporated, statutorily created association funded by assessments on every admitted property and casualty insurer doing business in California. When an admitted carrier is declared insolvent and ordered into liquidation, the court-appointed liquidator transfers open California claim files to CIGA, typically within 30 days of the liquidation date, and CIGA picks up where the insurer left off.

What are the limits I should know up front?

• $500,000 general capper covered claim for auto, general liability, property, and casualty under Insurance Code § 1063.1
• $1,000,000 capfor damage to or loss of a dwelling structure under a residential property insurance policy — or the amount recoverable under the policy, whichever is less
• $10,000 cap on unearned premium refunds when the carrier goes into liquidation mid-term
• Claims of $100 or less are excluded entirely
• No CIGA at all if your carrier is a surplus lines (non-admitted) insurer

How long does it take to get paid?

CIGA operates under the same Fair Claims Settlement Practices Regulations as any California insurer — it must acknowledge a claim within 15 days of notice (10 CCR § 2695.5(e)) and accept or deny the claim within 40 days once it has the information it needs (10 CCR § 2695.7(b)). In practice, the transition between the failed carrier and CIGA creates delays. There is typically a gap of weeks to months between when the insurer stops paying and when CIGA is fully operational on the file. During that period, you may need to advance funds for emergency repairs, temporary housing, or other urgent expenses out of pocket — so keep every receipt. CIGA will reimburse covered expenses up to policy limits, subject to the statutory caps.

How do I reach CIGA directly?

CIGA’s website is ciga.org. Its main phone number is (323) 782-0044. If your carrier was just declared insolvent and you have an open claim, do not wait for CIGA to find you — call.

What It Means When an Insurance Company Goes Insolvent

An insurance company becomes “insolvent” when it can no longer meet its financial obligations — when its liabilities exceed its assets and it cannot pay the claims it owes. Unlike most businesses, insurance companies do not simply file for bankruptcy under federal law. They are subject to a state-regulated process overseen by the California Department of Insurance (CDI) and the courts.

The CDI monitors insurers’ financial health, requiring them to maintain minimum capital and surplus levels. When an insurer’s condition deteriorates to the point where it can no longer meet its obligations, the CDI initiates a formal process that unfolds in two stages.

Conservation

Conservation is the first step. When the Insurance Commissioner determines that a company’s continued operation would be “hazardous to its policyholders, creditors, or the public,” the Commissioner obtains a court order to take control of the company. During conservation, the Commissioner’s Conservation and Liquidation Office (CLO) conducts a thorough examination of the company’s books and records to determine whether the company can be rehabilitated — restructured to resume normal operations — or whether liquidation is the only realistic option.

During the conservation phase, existing policies generally remain in force. The company continues to honor policy coverage and continues to adjust and pay claims — provided the policy was in force at the time of the loss, the loss is covered under the policy terms, and no applicable statute of limitations has expired. No new policies are written, and the company’s operations are under the Commissioner’s direct control. If rehabilitation succeeds, policyholders may never experience a disruption in coverage.

Liquidation

If rehabilitation is not feasible — typically because the insurer’s liabilities exceed its assets by a substantial margin — the Commissioner petitions the Superior Court for an order of liquidation under California Insurance Code § 1016. The court appoints the Commissioner as liquidator. A liquidation order terminates the company’s insurance business: all policies are cancelled, typically with 30 days’ notice; no new or renewal policies are issued; and the company’s remaining assets are marshalled to pay claims in the priority order established by Insurance Code § 1033.

In practice, the insolvent insurer’s remaining assets rarely cover all outstanding claims. Policyholders with pending claims may receive only a fraction of what they are owed from the insurer’s estate — sometimes nothing at all. This is where the guaranty fund system becomes critical.

The court-appointed liquidator publishes a notice informing anyone who might have a claim against the company to file a proof of claim before a specified deadline. This deadline is critical — missing it can mean losing the right to recover. Once the liquidation order is entered, CIGA’s obligations are triggered, and the liquidator forwards open California claims to CIGA, typically within 30 days of the liquidation date.

What Is the California Insurance Guarantee Association (CIGA)?

CIGA is a not-for-profit, unincorporated, statutorily created association established under California Insurance Code Sections 1063 through 1063.16 (the California Insurance Guarantee Association Act). Its purpose is to pay certain covered claims of insolvent property and casualty insurers’ policyholders and claimants. Every admitted property and casualty insurer licensed to do business in California is required to be a member of CIGA.

CIGA is not a government agency. It is not funded by tax dollars. It is funded by assessments levied on its member insurers — the admitted insurance companies doing business in California. When an insolvency occurs and claims need to be paid, CIGA assesses its members to raise the necessary funds.

Think of CIGA as a safety net — but one with holes. It exists to prevent policyholders of insolvent admitted carriers from being left with nothing. Its coverage is not unlimited, and it is not a substitute for having a financially sound insurer in the first place.

What CIGA Covers: The “Covered Claim” Definition

CIGA does not simply assume all obligations of the insolvent insurer. It is authorized to pay only “covered claims” as defined in California Insurance Code Section 1063.1. The definition is detailed and contains several important limitations.

To qualify as a covered claim, the obligation must:

• Be imposed by law and within the coverage of an insurance policy issued by the insolvent insurer
• Arise from a policy issued by an insurer that was admitted to transact insurance in California at the time the policy was issued
• Be a loss that occurred before the date the insurer was ordered into liquidation, or during the 30-day notice period for policy cancellation
• Be presented to the liquidator or CIGA on or before the last date fixed for filing claims in the domiciliary liquidation proceeding
• Involve a claimant who was a California resident at the time of the loss, or property located in California

Coverage Caps

CIGA’s obligations are subject to per-claim caps that can significantly limit recovery:

• General cap:$500,000 per claim for auto, general liability, property, and casualty claims (Insurance Code § 1063.1(c)(1)(A)(vii))
• Dwelling structure claims: For residential property insurance, a claim for damage to or loss of a dwelling structure shall not exceed $1,000,000 or the amount recoverable under the policy, whichever is less
• Separate coverage categories: Under residential property insurance, each claim for a loss under a different coverage category (dwelling, personal property, additional living expenses, other structures) is treated as a separate covered claim, each subject to its own cap
• Cybersecurity claims: Obligations under cybersecurity policies are capped at $1,000,000 or the policy limits, whichever is less
• Workers’ compensation:No cap applies to workers’ compensation benefits
• Unearned premium refunds:If the insurer goes into liquidation mid-term, you may be entitled to a refund of unearned premiums, but CIGA’s obligation for premium refunds is capped at $10,000

The practical impact of these caps depends on the size of your claim. For a homeowner with $800,000 in dwelling damage from a wildfire, the $1,000,000 dwelling cap provides adequate coverage. But for a homeowner with a $2,000,000 policy limit who suffers a total loss, the cap means CIGA will pay only half of what the policy would have covered. The policyholder would have to pursue the remaining balance as a general creditor of the insolvent estate — a process that often yields pennies on the dollar, if anything at all.

Minimum Claim Threshold

CIGA does not cover claims of $100 or less. This is a minor exclusion for most claims, but it exists in the statute (Insurance Code § 1063.1(c)(1)(A)).

What CIGA Does Not Cover

The exclusions from CIGA coverage are just as important as the inclusions. Understanding what falls outside CIGA’s scope is essential for every policyholder.

Surplus Lines and Non-Admitted Carriers: The Critical Gap

CIGA applies only to admittedinsurers — companies that are licensed by the California Department of Insurance to transact business in the state and are subject to California’s rate and form regulations. Surplus lines carriers (also called non-admitted carriers or excess and surplus lines carriers) operate outside the admitted market. They are not members of CIGA, and their policyholders are not protected by the guarantee association.

California Insurance Code Section 1765 requires that policyholders of non-admitted carriers receive written disclosure stating: (1) the insurer is not admitted in California; (2) the policy is not covered by CIGA; and (3) the policyholder may file complaints with the California Department of Insurance. In practice, many policyholders sign these disclosures without understanding what they mean — or forget about them entirely by the time they need to file a claim.

This matters now more than ever. As admitted carriers exit the California homeowners market or restrict new business, more policyholders are being pushed into the surplus lines market. Non-admitted carriers are increasingly writing homeowners coverage in high-risk areas where admitted carriers will not. While many surplus lines carriers are financially strong — foreign (U.S.-domiciled) surplus lines carriers must maintain at least $45 million in capital and surplus — their policyholders bear the risk of insolvency without the CIGA safety net.

Other Exclusions

Beyond the surplus lines exclusion, CIGA does not cover:

• Punitive or exemplary damages: Any amount awarded as punitive or exemplary damages is excluded from the covered claim definition
• Mortgage guaranty, financial guaranty, fidelity/surety, credit, title, and ocean marine insurance: These lines of business are carved out entirely
• Workers’ compensation:California workers’ compensation claims are handled by a separate guaranty fund, the California Insurance Guarantee Association for Workers’ Compensation — a distinct entity despite the similar name
• Self-insured entities:Employers or organizations that self-insure their risks are not covered — there is no admitted carrier to back-stop
• Certain large commercial entities: Some large commercial policyholders are excluded from CIGA coverage based on net worth thresholds in the statute
• Claims arising from policies issued before the insurer was admitted in California: If the policy was issued or renewed before the company was admitted to transact insurance in California, the obligations under that policy are not covered
• Amounts in excess of policy limits:CIGA’s obligation does not exceed the coverage provided under the insolvent insurer’s policy, regardless of the statutory caps
• Amounts in excess of the statutory caps: Any portion of a claim above the applicable CIGA cap is not covered. Policyholders who want that balance must pursue it as a general creditor of the insolvent estate

How CIGA Interacts with Other Insurance and Government Programs

CIGA is designed as a payer of last resort. Several provisions in the statute reduce CIGA’s obligations when other sources of recovery are available:

• Government insurance or guaranty programs:If you have a claim or legal right of recovery under any governmental insurance or guaranty program that also qualifies as a covered claim, you must first exhaust your rights under that program. Any amount payable on a covered claim is reduced by the amount recovered under the government program (Insurance Code § 1063.2)
• Other insurance guaranty associations:If your claim may be recovered under more than one state’s insurance guaranty association, you must generally seek recovery first from the association of your state of residence (for first-party property claims, from the association of the state where the property is permanently located). Any CIGA recovery is reduced by amounts recovered from other guarantee associations
• Other applicable insurance:If you have other insurance coverage that applies to the same loss, CIGA’s obligation may be reduced accordingly. CIGA is not intended to provide duplicate recovery

The practical effect: if you have any other source of coverage for the same loss, CIGA expects you to pursue that coverage first. CIGA steps in only for the gap that remains.

The Claims Process with CIGA: What to Expect

If your insurance company is ordered into liquidation, here is what the claims process with CIGA typically looks like.

Step 1: The Court Issues a Conservation or Liquidation Order

A California court issues a conservation or liquidation order against the insurer. Once the liquidation order is entered, CIGA’s obligations are triggered as to covered claims under policies of the insolvent admitted carrier.

Step 2: CIGA Receives Your Claim from the Liquidator

If you already had an open claim with the insolvent insurer, you generally do not need to re-file it. The court-appointed liquidator transfers open claim files to CIGA. However, some delays are inevitable — CIGA must first obtain the files from the liquidator, and this process does not happen overnight. Documentation that was submitted to the insolvent insurer may or may not survive the transfer cleanly. Keep complete copies of all claim documentation, correspondence, estimates, photographs, and supporting materials in your own files. Do not rely on the insolvent insurer to maintain these records.

Step 3: CIGA Contacts You and Assigns an Adjuster

As soon as possible after receiving the claim files, CIGA will mail letters detailing your rights under the California Insurance Guarantee Association Act and identifying who will be handling your claim. CIGA assigns an adjuster to evaluate each covered claim and requests any additional documentation needed — proof of loss, estimates, receipts. If you do not hear from CIGA within approximately one month from the date the company was declared insolvent, contact them directly at (323) 782-0044 or at ciga.org.

Step 4: Claim Investigation and Adjustment

CIGA has the right to investigate, adjust, compromise, settle, and pay covered claims. It also has the right to investigate, handle, and deny claims that do not qualify as covered claims. CIGA is a party in interest in all proceedings involving a covered claim and has the right to appear, defend, and appeal. The Fair Claims Settlement Practices Regulations (10 CCR § 2695 et seq.) apply to CIGA’s claims handling — including the 15-day acknowledgment requirement of 10 CCR § 2695.5(e) and the 40-day accept/deny requirement of 10 CCR § 2695.7(b).

Be prepared for the reality that CIGA’s claim handling may differ from what you experienced with the original insurer. CIGA is processing claims from a failed company, often with incomplete records, and subject to statutory constraints the original insurer was not. The process can be slower and more limited. CIGA has broad discretion in how it settles covered claims within the statutory framework, and the practical reality is that disputing CIGA’s decisions can be more difficult than disputing a regular insurer’s decisions.

Step 5: Payment (Subject to Caps and Limitations)

If your claim qualifies as a covered claim, CIGA will pay it — subject to the statutory caps, exclusions, and reductions described above. Payment is not instantaneous. CIGA must verify coverage, determine the amount owed, and apply all statutory limitations before issuing payment.

The Timely Filing Requirement: Do Not Miss the Deadline

Each liquidation proceeding has its own deadline for filing a proof of claim (POC). The deadline is established by the court in the liquidation order and is published in the notice sent to potential claimants. These deadlines vary from case to case. For example, Transport Insurance Company was ordered into liquidation on October 21, 2025, with a proof of claim deadline of May 21, 2026, for non-workers’ compensation claims.

Even if CIGA already has notice of your claim through the liquidator’s records, confirm that a proof of claim has been filed on your behalf before the deadline. Do not assume that someone else is tracking this for you. The consequence of missing the deadline is the loss of your right to payment — regardless of how meritorious your claim may be.

What Policyholders Lose When Their Carrier Goes Insolvent

Even with CIGA protection, insurer insolvency imposes real costs on policyholders. Some of these costs are not visible until you are deep in the process.

• Coverage gaps:Your policy is cancelled and you have to find replacement coverage immediately. In today’s California market, finding affordable replacement coverage can be extremely difficult, particularly in wildfire-prone areas.
• Amounts above the cap:Any claim value exceeding the applicable CIGA cap is functionally lost — recoverable, if at all, only as a general creditor of the insolvent estate, which usually yields pennies on the dollar.
• Bad faith remedies: If the insolvent insurer was handling the claim in bad faith before it went under, you lose the ability to pursue bad faith damages against the now-defunct company. CIGA does not assume liability for the insolvent insurer’s bad faith conduct.
• Delay and uncertainty: The liquidation process can take years. Policyholders who need funds to rebuild after a loss may wait far longer for CIGA payments than they would have waited from a functioning insurer.
• Negotiating leverage:With a functioning insurer you have tools — the appraisal process, CDI complaints, litigation, and the threat of bad faith damages. With CIGA, many of these leverage points are diminished or eliminated.

Recent California Insolvencies: Real-World Impact

Insurer insolvencies are not hypothetical. The California Conservation and Liquidation Office currently has multiple open estates, and several recent insolvencies have directly affected California policyholders:

• Merced Property & Casualty Company (liquidated December 3, 2018): This small California insurer was overwhelmed by claims from the devastating 2018 Camp Fire — the deadliest and most destructive wildfire in California history at that time. Facing approximately $64 million in potential liabilities from Paradise alone, the company could not meet its obligations. The California Insurance Commissioner took expedited legal action to seize the company’s assets and protect policyholders. Homeowners who had trusted Merced P&C with their coverage found themselves filing claims with CIGA instead of the carrier they had chosen.
• Bedivere Insurance Company (liquidated March 11, 2021): Bedivere was ordered into liquidation, affecting policyholders and claimants across multiple states, including California. Claimants were required to file proofs of claim by specified deadlines or risk losing coverage.
• Americas Insurance Company (liquidated June 23, 2022): Another carrier placed into liquidation, with CIGA assuming responsibility for covered claims in California.
• Arrowood Indemnity Company (liquidated November 8, 2023): This insolvency generated significant attention due to decades of valuable insurance coverage being subject to upcoming claim-bar dates.
• Transport Insurance Company (liquidated October 21, 2025):One of the most recent insolvencies, with a proof of claim deadline for non-workers’ compensation claims set for May 21, 2026.

The Merced P&C case is particularly instructive. It demonstrates what can happen when a small carrier is exposed to catastrophic wildfire losses that exceed its financial capacity. The policyholders who purchased coverage from Merced P&C did nothing wrong — they bought coverage from a licensed, admitted carrier. But when the Camp Fire struck, the company simply did not have the resources to pay. CIGA stepped in, but the process was slower, more limited, and more uncertain than what those policyholders had expected when they paid their premiums.

The California Insurance Crisis and Insolvency Risk

California’s insurance market is in crisis, and the conditions driving that crisis are directly relevant to insolvency risk. The combination of increasing wildfire risk, rising construction costs, regulatory constraints on premium increases, and carrier withdrawals has created an environment where insurer financial distress is a real concern. Understanding the connection is important for every policyholder.

The Non-Renewal Wave

Seven of the top twelve homeowners insurance carriers in California have halted new policies, restricted coverage areas, or refused renewals — cutting options by approximately 20 percent statewide. In 46 of 58 California counties, nonrenewals outnumbered new policies written in 2023, meaning the private homeowners insurance market contracted across most of the state. Los Angeles County alone recorded 56,558 nonrenewed residential policies from 2020 to 2023, representing about 22 percent of the state total.

The FAIR Plan’s Explosive Growth

As admitted carriers exit, policyholders are flooding into the California FAIR Plan — the insurer of last resort. The FAIR Plan’s total exposure reached $724 billion by December 2025, up 230 percent since September 2022. Policies in force rose to 668,609, with dwelling policies doubling in four years from 202,897 to 451,799. Written premium reached $1.98 billion in December 2025, up 202 percent since 2022.

The FAIR Plan itself faces enormous financial strain. After the January 2025 Palisades and Eaton fires, the FAIR Plan reported approximately $4 billion in estimated losses. To cover those losses, it assessed its member insurers $1 billion — half of which insurers may pass back to their customers in the form of premium increases — and sought a 36 percent rate increase to remain solvent. Assembly Bill 226 (AB 226) was enacted to allow the FAIR Plan to borrow funds, issue bonds, and impose additional assessments to manage catastrophic losses without becoming insolvent.

Why This Increases Insolvency Risk

The current market dynamics create several pathways to increased insolvency risk:

• Concentration of risk in smaller carriers:As major carriers exit high-risk areas, smaller and less-capitalized carriers inherit that risk. A single catastrophic event can overwhelm a small carrier — as happened with Merced P&C after the Camp Fire.
• Surplus lines growth: Policyholders pushed out of the admitted market are purchasing coverage from surplus lines carriers that are not backed by CIGA. If those carriers struggle, policyholders have no safety net.
• FAIR Plan assessments: When the FAIR Plan suffers catastrophic losses, it assesses its member insurers. Those assessments increase costs for admitted carriers, which can strain the finances of companies already operating on thin margins.
• Reinsurance costs: Rising reinsurance costs make it more expensive for carriers to transfer catastrophic risk, increasing the exposure they retain on their own balance sheets.

The policyholders most at risk are those who have been pushed to smaller, less financially stable carriers or into the surplus lines market after being non-renewed by major admitted insurers. These policyholders often pay the highest premiums while having the least protection if their carrier fails.

The Surplus Lines Gap, in Plain English

The most alarming gap in the guaranty fund system is the complete absence of protection for policyholders with surplus lines coverage. Surplus lines insurers — also called non-admitted insurers or excess and surplus carriers — are not members of CIGA and are not required to participate in any guaranty fund.

This matters enormously in the current California insurance landscape. As admitted carriers have pulled back from wildfire-prone areas, thousands of homeowners have been forced to obtain coverage through the surplus lines market. These policies typically carry higher premiums and fewer consumer protections than admitted policies. If the surplus lines carrier becomes insolvent, the policyholder has no guaranty fund backstop at all.

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 confirm.

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.

Warning Signs: How to Check Your Insurer’s Financial Health

The best time to worry about insurer insolvency is before it happens. You do not have to wait until your insurer is placed in conservation to evaluate its financial strength. Several tools are available.

AM Best Financial Strength Ratings

AM Best is the only global credit rating agency focused exclusively on insurance, and the most widely recognized in the U.S. property and casualty market. Its Financial Strength Ratings (FSRs) assess an insurer’s ability to meet its ongoing insurance obligations. Ratings range from “A++” (Superior) to “F” (In Liquidation), with “B+” and above considered “Secure” and ratings below “B+” considered “Vulnerable.”

AM Best evaluates insurers through the lens of balance sheet strength, operating performance, business profile, and enterprise risk management. You can look up your insurer’s rating for free at ratings.ambest.com (account creation required).

What to watch for:

• A rating below “A-” warrants scrutiny. Most large, established carriers carry ratings of “A” or higher.
• A rating of “B+” or lower warrants attention; below “B-” is a serious warning sign.
• A recent downgrade is a red flag, even if the current rating is still technically “Secure.” The direction of the rating matters.
• A “Negative Outlook” attached to the rating signals that AM Best expects conditions to worsen.
• An “Under Review” status means AM Best is actively reassessing the company — often a precursor to a downgrade.

Other Rating Agencies and Data Sources

• Standard & Poor’s (S&P) and Moody’s: These agencies also rate insurer financial strength, though their coverage of smaller carriers may be limited.
• NAIC IRIS:The National Association of Insurance Commissioners maintains financial data on all insurance companies. The NAIC’s Insurance Regulatory Information System (IRIS) tracks key financial ratios that regulators use to identify financially troubled companies.
• Demotech ratings: For smaller carriers not rated by AM Best, Demotech provides financial stability ratings. These are commonly used for Florida and other catastrophe-exposed carriers, and appear in California as well.
• CDI company profile search:The California Department of Insurance website (insurance.ca.gov) allows policyholders to look up any insurer’s licensing status, complaint history, and financial condition information.

NAIC Complaint Index

The California Department of Insurance publishes a complaint index that measures each insurer’s share of justified complaints relative to the amount of business it writes in California. An index of 1.00 means the insurer’s complaint share equals its market share. An index of 2.00 means the insurer generates twice as many complaints as its market share would predict.

A high complaint index does not necessarily indicate financial trouble, but it can signal operational problems that may eventually affect financial stability — and it tells you something about how the company treats its policyholders.

You can access complaint data through the California Department of Insurance Consumer Complaint Study and through the NAIC Consumer Information Source.

Other Warning Signs

• Non-renewal notices:If your carrier is non-renewing large blocks of policies — especially in specific geographic areas — it may be reducing exposure because it cannot afford the risk.
• Significant rate increases: While rate increases alone do not signal insolvency, dramatic increases can indicate that the carrier has been underpricing risk and needs to correct course quickly.
• Claims handling delays: An insurer that is suddenly taking much longer to process and pay claims may be experiencing cash flow problems.
• News coverage: Regulatory actions, lawsuits, and financial reporting often signal trouble before formal insolvency proceedings begin. Pay attention to industry news about your carrier.
• CDI actions: The California Department of Insurance publishes press releases about enforcement actions, conservation orders, and other regulatory interventions. Monitor the CDI website for news about your insurer.
• Channel shift to surplus lines:A carrier that begins offering policies only through surplus lines channels after previously operating as an admitted insurer is signaling something about its appetite for California exposure — and stripping its policyholders of CIGA protection in the process.

What to Do If You Receive a Non-Renewal from a Financially Weak Carrier

If you receive a non-renewal or cancellation notice from a carrier whose financial health concerns you, consider these steps:

• Do not panic, but do not delay. You have time to find replacement coverage before the non-renewal takes effect, but you need to start immediately. California law requires advance notice for non-renewals (typically 45 to 75 days depending on the circumstances).
• Verify your current carrier’s status.Check the CDI’s website and CIGA’s liquidation directory to confirm whether any regulatory action has been taken against your insurer. Check AM Best for the current financial strength rating.
• Prioritize admitted carriers for replacement coverage. When shopping for a new policy, confirm that the replacement carrier is admitted in California and therefore backed by CIGA. Ask your broker or agent directly.
• If surplus lines is your only option, evaluate the carrier carefully. Check the carrier’s AM Best rating, its capital and surplus levels, and its claims-paying history. Understand that you will not have CIGA protection if the carrier fails.
• Document any open claims. If you have any open claims with the non-renewing carrier, make sure they are fully documented. Obtain copies of all correspondence, estimates, and payments. If the carrier is subsequently placed in conservation or liquidation, having your own records will be essential.
• Consider consulting a Public Adjuster or attorney. If you have an open claim with a carrier you suspect may be heading toward insolvency, professional assistance can help ensure your claim is properly documented and positioned before the transition to CIGA.

What to Do If Your Carrier Is Declared Insolvent

If you receive notice that your insurance company has been placed into liquidation, consider acting on these steps right away:

1. Obtain replacement coverage. Your policy will be cancelled. Contact an insurance agent or broker immediately to obtain new coverage. If you cannot obtain coverage in the admitted market, the California FAIR Plan is available as an insurer of last resort for fire coverage.
2. File a proof of claim. Follow the instructions in the liquidation notice to file a proof of claim by the stated deadline. Include all documentation supporting your claim. Do not assume someone else is tracking this for you.
3. Contact CIGA. Verify that your policy qualifies as a covered claim under the CIGA Act. Call (323) 782-0044 or visit ciga.org for information on covered insolvencies and the claims process.
4. Preserve all records. Gather and preserve all policy documents, correspondence with the insurer, claim files, estimates, photographs, and receipts. Do not rely on the insolvent insurer to maintain these records.
5. Consult with a professional. If you have a significant pending claim, consider consulting with a licensed Public Adjuster or an attorney to help protect your interests through the CIGA claims process.

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 statutory structure and the AB 226 borrowing and assessment tools), CIGA would apply. But CIGA coverage caps would still apply on top: $500,000 general, $1,000,000 for residential dwelling claims.

Practical Guidance for Policyholders

Key Authorities

References & Sources

• California Insurance Code §§ 1063–1063.16 (California Insurance Guarantee Association Act), available at California Legislative Information
• California Insurance Guarantee Association (CIGA), “FAQs,” ciga.org/resources/faqs
• California Insurance Guarantee Association (CIGA), “How We Work,” ciga.org/how-we-work
• California Department of Insurance, Conservation and Liquidation Office, insurance.ca.gov/0500-about-us/02-department/025-clo
• California Department of Insurance, “Regulator takes control of small failing insurer” (Merced P&C), Press Release, December 2, 2018, insurance.ca.gov/0400-news/0100-press-releases/2018/release141-18.cfm
• California FAIR Plan, Key Statistics & Data, cfpnet.com/key-statistics-data
• AM Best, Company and Rating Search, ratings.ambest.com
• NAIC Consumer Information Source, content.naic.org/consumer
• National Association of Insurance Commissioners, guaranty fund overview and IRIS financial ratio data, naic.org.
• United Policyholders, consumer guidance on insurer insolvency and guaranty fund limitations, uphelp.org.
• Insurance Information Institute, “How to assess the financial strength of an insurance company,” iii.org

Frequently Asked Questions

What happens when my insurance company becomes insolvent?

The California Department of Insurance places the company into conservation first, attempting to stabilize it. If rehabilitation fails, the Insurance Commissioner petitions the court for a liquidation order under Insurance Code § 1016. Once liquidation is ordered, all policies are cancelled — typically with 30 days’ notice — and the company’s remaining assets are marshalled to pay claims in the statutory priority order under § 1033. Pending claims rarely get paid in full from the estate itself, which is why the California Insurance Guarantee Association (CIGA) safety net matters. Insurance companies do not file federal bankruptcy; they go through this state-regulated process overseen by the CDI and the courts.

What is CIGA and what does it cover?

CIGA is a not-for-profit, statutorily created association under Insurance Code § 1063 et seq., funded by assessments on admitted property and casualty insurers — not a government agency and not funded by taxpayer dollars. When an admitted insurer is ordered into liquidation, CIGA steps in to handle “covered claims” within statutory limits and exclusions. The claim must arise under a policy issued by an admitted insurer, must be a covered loss under the policy, the loss must have occurred before the liquidation order (or within the 30-day cancellation notice period), and the claimant or property must be in California.

What are the CIGA coverage caps?

$500,000 per claim for auto, general liability, property, and casualty under Insurance Code § 1063.1(c)(1)(A)(vii). For residential property insurance, dwelling-structure claims are capped at $1,000,000 or the amount recoverable under the policy, whichever is less. Each separate coverage category under residential property insurance (dwelling, personal property, additional living expenses, other structures) is treated as a separate covered claim, each subject to its own cap. Cybersecurity claims are capped at $1,000,000 or policy limits. Workers’ compensation has no cap. Unearned premium refunds are capped at $10,000. Claims of $100 or less are excluded entirely.

Is there a $300,000 net-worth disqualification for residential property claims?

No. Insurance Code § 1063.1 does not contain a net-worth disqualification for residential property claims. The $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) under Insurance Code § 1067 et seq. — a separate statutory body that backs life and annuity policies, not property/casualty. There are certain large commercial entities excluded from CIGA based on net-worth thresholds in the statute, but residential homeowners are not subject to that disqualification. Verify CIGA eligibility directly with CIGA at ciga.org.

Why are surplus lines (non-admitted) carriers a critical gap?

CIGA applies only to admitted insurers — companies licensed by the CDI and subject to California’s rate and form regulations. Surplus lines carriers operate outside the admitted market, are not CIGA members, and their policyholders have no guaranty fund protection. As admitted carriers exit the California homeowners market or restrict new business in high-risk areas, more policyholders are being pushed into surplus lines. Insurance Code § 1765 requires a written disclosure that the policy is not covered by CIGA, but in practice many policyholders sign it without grasping what it means until they need to file a claim.

What is the claims process with CIGA?

If you had an open claim with the insolvent insurer, you generally don’t re-file — the court-appointed liquidator transfers open files to CIGA, though delays are inevitable. CIGA will mail letters identifying who handles your claim; if you don’t hear from CIGA within roughly a month of the insolvency, contact them directly at (323) 782-0044 or ciga.org. CIGA then investigates, adjusts, and pays covered claims (or denies claims that don’t qualify), subject to the statutory caps, exclusions, and reductions. The Fair Claims Settlement Practices Regulations (10 CCR § 2695 et seq.) apply — including 15-day acknowledgment (§ 2695.5(e)) and 40-day accept/deny (§ 2695.7(b)). Expect the process to be slower and more limited than dealing with a functioning carrier: CIGA is processing claims from a failed company, often with incomplete records, and under statutory constraints the original insurer didn’t have.

Do I have to meet a filing deadline?

Yes, and it is strictly enforced. Each liquidation proceeding has its own court-set proof-of-claim (POC) deadline, established in the liquidation order and published in the notice sent to potential claimants. Deadlines vary from case to case but are typically set several months out from the liquidation order. To qualify as a covered claim, your claim must be presented to the liquidator or CIGA on or before that deadline. Even if CIGA has notice of your claim through the liquidator’s records, confirm in writing that a POC has been filed on your behalf — do not assume someone else is tracking it for you. Missing the deadline forfeits your right to payment regardless of how meritorious the claim is.

How does CIGA interact with other insurance I might have?

CIGA is a payer of last resort. If you have a claim under any governmental insurance or guaranty program covering the same loss, you must exhaust that first; CIGA reduces its payment by what you recover (Insurance Code § 1063.2). If your claim could be recovered under more than one state’s guaranty association, you generally seek recovery first from your state of residence (or, for first-party property, from the state where the property is located). If you have other insurance covering the same loss, CIGA’s obligation may be reduced — CIGA is not designed to provide duplicate recovery.

What can I lose even with CIGA protection?

Coverage gaps (your policy is cancelled and you have to find replacement coverage in California’s tight market). Any loss above the applicable CIGA cap. The ability to pursue bad faith damages against the now-defunct company — CIGA does not assume liability for the insolvent insurer’s bad faith conduct. Delay and uncertainty (liquidation can take years). Negotiating leverage: appraisal, CDI complaints, and the threat of bad faith litigation all become diminished or unavailable when dealing with CIGA rather than a functioning insurer.

How do I check if my insurer is admitted, and how do I check its financial strength?

To check admitted status: visit insurance.ca.gov, use the Company Profile Search, enter your insurer’s name, and look for “License Status: Active” and “License Type: Admitted.” If it shows “Non-Admitted” or “Surplus Lines,” CIGA does not cover you. For financial strength, AM Best is the most widely recognized rating agency for insurance (ratings.ambest.com). Ratings range from A++ (Superior) to F (In Liquidation); B+ and above is “Secure,” below B+ is “Vulnerable.” A rating below A- warrants scrutiny; B+ or lower warrants attention; below B- is a serious warning. Watch for recent downgrades, “Negative Outlook,” and “Under Review” status. Standard & Poor’s, Moody’s, NAIC IRIS data, Demotech ratings (smaller carriers), and the CDI complaint index are additional sources. An index above 1.00 means the insurer generates more justified complaints than its market share would predict.

Is the California FAIR Plan the same as CIGA?

No. The FAIR Plan is an insurer of last resort for properties that cannot obtain coverage in the standard market. CIGA is the guarantee association that pays claims when an admitted carrier becomes insolvent. The FAIR Plan is itself admitted and is backed by all admitted California insurers, so in the unlikely event the FAIR Plan became insolvent, CIGA would apply — but CIGA caps ($500,000 general, $1,000,000 residential dwelling) would still apply on top.

Related Reading

• Bad Faith Insurance Practices in California
• The California FAIR Plan: What You Need to Know
• The Appraisal Process: Resolving Claim Disputes
• When to Hire a Public Adjuster
• Filing Supplemental Claims: Getting Paid for What They Missed
• Insurance Myths Exposed: What Your Adjuster Won't Correct
• What Is Homeowners Insurance? A Primer

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.

Written by Leland Coontz III, Licensed Public Adjuster, CA License #2B53445.