Insolvency, CLHIGA, and Fair Claims Settlement Practices Regulations

Two different protections

California addresses insurer failure through the California Life and Health Insurance Guarantee Association, or CLHIGA, and addresses unfair claim handling through claims settlement law. Financial distress and unfair claim handling are different problems.

Under the CLHIGA Act, an impaired insurer is a member insurer under a court order of rehabilitation or conservation that is not an insolvent insurer. An insolvent insurer is a member insurer placed under a court liquidation order with a finding of insolvency. Rehabilitation attempts to restore an insurer; liquidation winds it down.

Limited protection after insurer failure

CLHIGA protects eligible persons with covered life, health, and annuity obligations, subject to statutory limits. It is not unlimited replacement of every loss. Coverage depends on the person, contract, and benefit. California residents who own covered policies generally qualify; qualifying beneficiaries can reside elsewhere. Nonresident owners face additional statutory conditions. Structured settlement annuities have separate payee-based rules.

Member-insurer assessments help fund the protection. California permits health insurers to recover assessments through policy surcharges. CLHIGA excludes extracontractual claims such as punitive damages and claims based on marketing materials rather than covered written policy obligations. Medicare Parts C and D policies are excluded.

Fair claims settlement

California's unfair claims statute addresses conduct committed knowingly or with such frequency as to indicate a general business practice. Examples include misrepresenting coverage, ignoring claim communications, failing to establish reasonable investigation standards, and failing to pursue prompt, fair settlements when liability is reasonably clear. Insurers must not withhold an apparent obligation under one coverage to influence another settlement. A denial or compromise offer needs a prompt, reasonable explanation connecting the policy to the facts or law.

The Fair Claims Settlement Practices Regulations add operational standards. Under the general claims timetable, acknowledgment is due within 15 calendar days, acceptance or denial within 40 calendar days after proof of claim, and continuing written notices every 30 calendar days when additional time is needed. Product-specific rules and exceptions apply, so identify the applicable coverage before using these deadlines.

Separately, Insurance Code section 790.034 requires the specified claims-rights materials immediately, no later than 15 calendar days after claim notice, and requested law and applicable regulations within 15 calendar days. Those disclosure deadlines are not claim-payment deadlines. The Insurance Commissioner can investigate unfair insurance practices.