If an admitted P&C insurer goes broke, its policyholders are not simply out of luck. The California Insurance Guarantee Association (CIGA) exists to provide insolvency insurance for its admitted member insurers. Think of it as insurance for the insurance company, paid for by the admitted market.
CIGA pays "covered claims," and the Code caps them:
- The part of a claim above $500,000 is excluded, except for workers' compensation claims.
- A higher cap of up to $1,000,000 applies only to dwelling claims under residential property policies.
Example: a $700,000 auto liability claim within a $750,000 limit qualifies for only $500,000. The policy limit does not raise the cap.
What CIGA does not cover:
Life, health, title and surety insurance are outside CIGA.
Only admitted member insurers are protected. Nonadmitted (surplus line) insurers and risk retention groups do not participate, which is why their policyholders get a warning notice.