I am being sued for a car accident that took place nearly three years ago. My insurance carrier at that time is now bankrupt. What do I do?

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I am being sued for a car accident that took place nearly three years ago. My insurance carrier at that time is now bankrupt. What do I do?

My son borrowed my car approx. 3 years ago, had an accident which he was found at-fault, resulting in the other person’s car being totaled. The other driver did not claim to be injured at the time of the accident. Coincidentally, my car insurance carrier went bankrupt and it took me one year to collect the damages to my car from that carrier. Today, my husband and I received a summons from the other driver saying that he suffered severe injuries and that he suing us for $1,000,000. What responsibility does our, now defunct, insurance company have to pay this guy? Doesn’t the bankruptcy judge who oversees the disbursement of insurance company funds have to have money put aside for claims that came in before the auto insurance company went bankrupt?

Asked on March 22, 2009 under Insurance Law, Missouri

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 12 years ago | Contributor

Insurance companies that fail are placed into a state operated insolvency proceeding in the state of their incorporation, and an official from that state's insurance department typically takes over the insolvent company as Liquidator and gradually winds up its affairs, pays claims, etc.

In addition, each of the 50 states has a separate life insurance guaranty fund and a property-casualty insurance guaranty fund. The insurance guaranty fund typically provides some measure of protection to the former policyholders of the insolvent company in the local state who were placed in peril by the insolvency of any of the insurance companies who had been licensed in that state. There are limits on the amount of protection provided and requirements as to what one must do to get protection. (The website http://www.insuranceguarantyfunds.com will have more information about state insurance guaranty funds.)

However, once you have been served with process in a lawsuit you must answer the suit within the required time limit or risk a default judgment being taken against you. We suggest that you immediately send a notice of the new claim to the liquidator of the insurance company in its state of domicile and that you also contact your state's insurance department and your state's property casualty insurance guaranty fund and advise them of this claim. Consulting an attorney to represent your interests also may be wise, especially if the guaranty fund protection is limited.


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