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Following in the wake of the Lehman Brothers collapse are news reports that AIG, the nation’s largest insurance company, is in trouble. And that issue raises the question, “What happens to personal injury claims covered by AIG policies if AIG fails?”

In Texas, the answer can range everywhere from “not much changes” to “everything changes” depending on the nature of your claim. Chapter 462 of the Texas Insurance Code establishes the Texas Property and Casualty Insurance Group Association. The Association is designed to take over and pay claims that are covered by insolvent insurers.

Generally, after a stay period, the claims are handled very similarly for most cases. The Association has its own adjusters that handle the claim and resolve the claim. For most claims, the only difference is that the Association does not pay prejudgment or postjudgment interest and it doesn’t cover extracontractual claims, which entirely does away with the Stower’s Doctrine, a tool that can help settle marginal policy limits cases. But other than those differences, and the fact that the Association’s adjusters are a bit more stingy, not much else changes for smaller cases.

The biggest change comes for large cases because the Association limits claims to $300,000.00 per claimant. If your claim is worth more than $300,000 then you have lost that excess claim amount. That limit can be devestating in many catastrophic cases. In those situations, whether the insurer is solvent makes all the difference in the world.

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