When Your Insurance Company Goes Insolvent: CIGA and What California Policyholders Need to Know

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 fails — when it runs out of money, is seized by regulators, and can no longer pay claims?

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.

This article explains what happens when a California property and casualty insurer goes insolvent, how the California Insurance Guarantee Association (CIGA) steps in, what CIGA covers and what it does not, and what you should do to protect yourself — both before and after an insolvency occurs.

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. Instead, they are subject to a state-regulated process overseen by the California Department of Insurance (CDI) and the courts.

The process typically 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.

During the conservation phase, existing policies generally remain in force. The company continues to honor policy coverage and benefits 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. However, no new policies are written, and the company’s operations are under the Commissioner’s direct control.

Liquidation

If rehabilitation is not feasible, the Commissioner petitions the Superior Court to order the company into liquidation. A liquidation order terminates the company’s insurance business: all policies are canceled, no new or renewal policies are issued, and the company’s assets are marshaled to pay claims to the extent possible.

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 your right to recover.

Once the liquidation order is entered, CIGA’s obligations are triggered. The liquidator forwards open California claims to CIGA, typically within 30 days of the liquidation date. CIGA then steps in as the entity responsible for paying covered claims.

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. 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. But 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 presented to the liquidator or CIGA on or before the last date fixed for filing claims in the domiciliary liquidation proceeding

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

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. But 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
• 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

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: 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.

Step 2: CIGA Contacts You

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. If you do not hear from CIGA within approximately one month from the date the company was declared insolvent, CIGA advises contacting them directly.

Step 3: 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.

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 that the original insurer was not. The process can be slower and more limited.

Step 4: 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, you should 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.

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. 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.

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

You do not have to wait until your insurer is placed in conservation to worry about its financial strength. There are tools available to evaluate your carrier’s financial health before problems arise.

AM Best Financial Strength Ratings

AM Best is the only global credit rating agency focused exclusively on insurance. 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 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.

NAIC Complaint Index

The National Association of Insurance Commissioners (NAIC) compiles complaint data from state insurance departments. 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. While a high complaint index does not necessarily indicate financial trouble, 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.

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, take 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.

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/consumers_claims.html
• 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
• Insurance Information Institute, “How to assess the financial strength of an insurance company,” iii.org

Frequently Asked Questions

Related Reading

• Bad Faith Insurance Practices in California
• The California FAIR Plan: What You Need to Know
• When to Hire a Public Adjuster
• Filing Supplemental Claims: Getting Paid for What They Missed
• Insurance Myths Exposed: What Your Adjuster Won't Correct