When an insurance company’s financial distress forces it out of business in the U.S., the company does not file for bankruptcy.
A state court usually issues the insurance company an order of insolvency and liquidation, according to the National Organization of Life & Health Insurance Guaranty Associations’ (NOLHGA) website.
The association is comprised of life and health insurance guaranty associations in all 50 states and the District of Columbia, which protect policyholders when an insurance company fails.
Guaranty associations act as safety nets for insurance consumers across America, ensuring they continue to receive coverage, up to state-defined limits, even if their insurer liquidates.
Insurance company liquidations are rare
Insurance company failures are rare, as NOLHGA reported only 12 liquidations in the 10 years from 2015 through 2024.
The high-water mark for liquidations in those 10 years was 2019, with three liquidations. The next highest amount was two liquidations in 2017 and 2015.
NOLHGA reported no liquidations in 2018 and 2020, according to its website.
Insurance company liquidations 2015-2024:
- CoOpportunity Health, 2015
- SeeChange Health Insurance Company, 2015
- American Medical and Life Insurance Company, 2016
- Penn Treaty Network American Insurance Co.2017
- American Network Insurance Company, 2017
- Senior American Insurance Company, 2019
- Pavonia Life Insurance Company of Michigan2019
- Northwestern National Insurance Company of Milwaukee Wisconsin2019
- Bankers Life Insurance Company, 2021
- North Carolina Mutual Life Insurance Company, 2022
- Southland National Insurance Corporation, 2023
- Colorado Bankers Life Insurance Company, 2024
On an even rarer occasion, an insurance company might still file a petition in a U.S. Bankruptcy Court, if their insolvency and liquidation petition was filed in a foreign jurisdiction.
An insurance company will file a Chapter 15 petition seeking U.S. court recognition of their foreign case to protect any assets the debtor might have in the U.S.
A major insurance company, which has been forced into insolvency and liquidation in Bermuda as a result of dozens of child sex abuse claims liabilities, has also filed for bankruptcy protection.
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Northeast Insurance files Chapter 15 bankruptcy
Bermuda-based Northeast Insurance Company, which insures several New York hospitals, filed for Chapter 15 bankruptcy protection, seeking recognition of its overseas insolvency and liquidation as a foreign main proceeding.
The filing triggers an automatic stay of all legal proceedings against the company in the U.S. while its bankruptcy case proceeds.
Foreign entities will file for Chapter 15 bankruptcy to seek recognition of their overseas insolvency cases and to protect their interests in the U.S.
More bankruptcy:
- 34-year-old casual dining chain files for Chapter 11 bankruptcy
- Major seafood company files for Chapter 11 bankruptcy
- 55-year-old women’s fashion company files Chapter 11 bankruptcy
Northeast Insurance, which filed for insolvency and liquidation on Oct. 7 in Bermuda, also filed its Chapter 15 petition on Oct. 13 in the U.S. Bankruptcy Court for the Southern District of New York to protect its U.S. assets, after it was forced into insolvency from a wave of alleged child sexual abuse claims under New York’s Child Victims Act, USA Herald reported.
Northeast Insurance faced 55 abuse allegation claims
The debtor’s case asserts that 55 claims related to decades-old abuse allegations pushed the company’s balance sheet deep underwater. The Child Victims Act, which became law in New York in 2019 and extended the statute of limitations for child abuse survivors, exposed the insurer to major unforeseen liabilities.
The Child Victims Act extended the statute of limitations to allow victims of child sexual abuse to sue in civil court until age 55 and allow the criminal prosecution of many sexual offenses committed against children, to begin up until the age of 23 rather than by age 18.
Northeast Insurance was established to operate as a risk-sharing shield for its New York-area members, which included Mount Sinai Medical Center, Maimonides Medical Center, Montefiore Medical Center, Beth Israel Medical Center, CenterLight Health System Inc., and the UJA/Federation of Jewish Philanthropies of New York, and others, according to USA Herald.
Northeast Insurance member institutions:
- Mount Sinai Medical Center
- Maimonides Medical Center
- Montefiore Medical Center
- Beth Israel Medical Center
- CenterLight Health System Inc.
- UJA/Federation of Jewish Philanthropies of New York
The insurance company stopped writing new insurance policies at the end of 2017, but the company at the time believed its reserves were more than sufficient to meet its obligations, Mark Allitt, foreign representative and joint provisional liquidator, said at that time.
“The claims were unforeseeable at the time of cessation of writing new policies and, therefore, no corresponding reserves were funded at that time,” Allitt said in a declaration.
Related: Major skilled nursing home chain files Chapter 11 bankruptcy
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