State Takes Over Insolvent Insurance Company After Camp Fire

Dec. 10--The recent Camp Fire in Butte County was the deadliest and most destructive fire in the state's history.

One relatively small insurance company -- Merced Property & Casualty Company -- became overwhelmed by the volume of claims flowing in, leading to its insolvency, which resulted in the state stepping in to handle the liquidation.

Some Yuba-Sutter residents have policies through Merced Property & Casualty Company, and though they will likely be able to work out a new deal with a different insurer, those living in the foothills and other high-risk fire areas will likely experience some difficulties, experts say.

"As brokers and agents, we are definitely affected by what happens with Merced (Property & Casualty Company)," said Brian Ashburn, co-owner and president of Robert M. Galligan and Associates, Inc. in Marysville. "In our office, we have 90 clients that are losing their policies within 30 days. If we, or they, don't find other coverage, that means that within 30 days they have no insurance."

California Insurance Commissioner Dave Jones was given the go-ahead by a judge last week to seize and liquidate the company's assets. His office deemed the company insolvent after reviewing its financial records -- meaning it did not have sufficient assets to pay its liabilities -- after the significant losses its policyholders incurred during the Camp Fire.

"Basically, by being a smaller, regional carrier, they had close to 200 homes that were destroyed in the Paradise fire. That overwhelmed them and they didn't have enough reserves to cover the claims, so the state came in and took over operations," Ashburn said.

Merced policyholders qualify for coverage from the California Insurance Guarantee Association -- created by state law to provide protection to policyholders and claimants in the event of an insurer's liquidation -- and the insurance commissioner's office is tasked with seeing the transition through. Policyholders can also work with individual brokers on their own to find coverage that meets their needs.

Ashburn said he and his colleagues are working diligently with their affected clients to replace their coverage. For customers on the valley floor, it won't be too much of a hassle. However, people living in high fire risk areas are another story.

"We are going to run into difficulties in writing for homes in the foothills and mountains because of the fires. Current conditions and wildfires have changed some companies' willingness to write in those areas. So, finding those companies has become really difficult," said Don Curtis, vice president and co-owner of Robert M. Galligan and Associates.

Finding a new policy

Robert Coe Jr., president of Buttes Insurance Agency, said his company had about 25-30 clients that had policies through Merced. Because his clients are located on the valley floor, he said finding a comparable insurer should be fairly painless.

The bigger issue, he said, is the precedent the folding of Merced sets and how the state handles it -- considering floods and fires aren't expected to stop occurring around the state any time soon.

"My guess is we will end up with something like Florida has with its hurricanes. People have to buy separate coverage from a state pool," Coe said. "It is a long-term concern for us. It really is almost impossible to find someone willing to write something new for someone up in the foothills. There are those doing it, but at a high price."

Experts advise anyone who had a policy with Merced Property & Casualty Company should seek coverage with another insurer immediately. Anyone who experiences difficulty finding replacement coverage in the normal market may be eligible for coverage through the California FAIR Plan Association -- www.cfpnet.com.

Ashburn said proactive homeowners in high-risk areas who maintain their property correctly -- removing dense trees and brush at least 200 feet from any structure -- can better their chances of finding coverage. The best thing to do, he said, is for people to do their homework.

"For people considering purchasing properties (in high-risk areas), I'd say they need to do their homework first on whether or not insurance is available to them and what the costs would be," he said.

To keep updated on the Merced liquidation, go to www.caclo.org/Merced.

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