Mansell, Engel & Cole

Insurer can’t perform in wake of massive fire; taken over by state

Catastrophic events always test the mettle of an insurance company, whether in Oklahoma or elsewhere. Indeed, it is often in the wake of something like a massive tornado or hurricane that an insurer is truly tested. Will it proactively and timely respond to legitimate policyholder concerns? Will it pay claims in a full and prompt manner?

In short, will it act responsibly or elicit material concerns from claimants that spotlight either a negligent or wanton bad-faith response at a time when help is most desperately needed?

Consider Merced Property & Casualty Company, an entity that has insured legions of California homeowners and property principals against natural catastrophes. Unlike other insurers, the company is now in liquidation in the aftermath of the historic Camp Fire that recently ravaged across northern California. Regulators in that state took over Merced Property late last month when it became clear that the company couldn’t fulfill its contractual duties to policyholders with destroyed homes and businesses.

Some people – above all, insurance company spokespersons – will point to Camp Fire’s unprecedented level of destruction as justification for a failed company response. They can point to the near demise of an entire town, scores of lives lost in the conflagration and billions of dollars in damages.

Merced Property can’t duly pay up on claims by policyholders who did reciprocally honor their part of a contractual bargain via monthly premiums dutifully made.

Notably, though, other insurers – while also taxed mightily by the fire – aren’t making any excuses. A recent AP article on post-fire insurance company responses stresses that aside from Merced Property, “No other insurers have reported insolvency.”

It merits noting that Merced Property customers aren’t without hope or protection in the fire’s wake, owing to the insurer’s inability to respond. Reportedly, policyholders will still be paid by California’s Insurance Guarantee Association.

Catastrophic conditions are what is centrally on the minds of many policyholders when they contractually engage with insurers for protection of their homes and businesses. They have a reasonable expectation that those companies will step up and perform responsibly when the need arises for them to do so.

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