Florida Insurance Guaranty Association

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Much like the Federal Deposit Insurance Corporation (FDIC) "covers" deposits in certain banks, the Florida Insurance Guaranty Association (FIGA) "covers" claims of certain insolvent property and casualty insurers. For detailed information about FIGA, including their plan of operation, staff listing, statutes, and a "FAQ" section, check their web page at www.figafacts.com.

FIGA responds for covered claims of insolvent insurers after a $100 deductible has been met. Not all insurers or types of policies are covered by FIGA. Florida Statute FS 631.52 lists about a dozen types of policies that are not covered, including but not limited to: life, health, disability, bonds, workers' compensation, and surplus lines insurers. (Other guaranty funds exist for life and health policies as well as workers' compensation policies.)

A common question posed at the time of insolvency is, "How much does FIGA cover?" Just like the FDIC has a limit FIGA has limits too, and they are spelled out in Florida Statute 631.57. The basic limit provided by FIGA is $300,000 per covered claim. (A "covered claim" includes claims for return premiums due to the policyholder by the insolvent insurer.) For condominium and homeowners associations the limit is $100,000 multiplied by the number of units. Additionally, as a result of a statute change during the 2006 legislative session, an additional $200,000 is provided for homeowners policy claims that involve structure or contents damage. This increased $200,000 is effective as of May 16, 2006. A few examples will illustrate how FIGA responds to claims. (All examples ignore the $100 deductible.)

EXAMPLE #1:

An owner-occupied home is covered by an HO-3 policy. Coverage A is $450,000 and the house is a total loss. FIGA responds for $450,000. If personal property were damaged an additional $50,000 is available since the maximum limit payable by FIGA is $500,000.

EXAMPLE #2:

Same as #1, but a dog bites someone and the verdict against the homeowner is $450,000. Only $300,000 is covered by FIGA. The additional $200,000 does not apply because it's not a structure or contents loss.

EXAMPLE #3:

A tenant-occupied home is covered under a DP-3 for $450,000. The tenant has an HO-4 for $450,000. The house is a total loss during a hurricane. The DP-3 is covered by FIGA for $450,000 but the tenant's HO-4 is covered by FIGA only for $300,000. The increased $200,000 is not available because the statute says it does not apply for "renter's insurance" or "tenant's coverage." (FIGA interprets these terms to mean a policy like an HO-4 policy.)

EXAMPLE #4:

A commercial building burns to the ground. The policy provides $1.2 million of building coverage. Only $300,000 is covered by FIGA. The increased $200,000 is only available for homeowners risks.

A guaranty association functions as a safety net. The goal is to reduce the financial impact on the policyholders of an insolvent carrier. While $300,000 or $500,000 seems like a generous amount of protection, the loss may exceed the FIGA limit. Take for example a typical homeowners policy with $400,000 of Coverage A, $40,000 of Coverage B, $200,000 of Coverage C, and $120,000 of Coverage D. Some quick math shows that the insured has $760,000 of property coverage under the policy, but FIGA covers only $500,000 of the claim. Or, consider a commercial building insured for $2 million; only $300,000 is available from FIGA. In cases where the loss exceeds the FIGA payment the insured should file a claim with the receiver as part of the insolvent company's estate for the amount of loss over the limit and the $100 deductible. When all of the assets are liquidated and obligations established, a distribution will be made on the remaining claims in the estate.

On a related issue, while the existence of FIGA does provide somewhat of a "security blanket" to policyholders, Florida Statute 631.65 is very specific in that no one may use the existence of FIGA as an inducement to purchase insurance. For example, an agent can't legally tell a customer, "The quote you have from another agency is a surplus lines quote and that company isn't covered by FIGA. On the other hand, my quote is through a company covered by FIGA so you'd be better served to take the policy I am offering."

While FIGA is a great organization that offers protection to many Florida policyholders, it's not a "cure-all" for every insolvency situation. It's important to understand what the limitations of FIGA are.

Statutes referenced in this article are shown below:

631.57- Powers and duties of the association.-- (1)(a)

2. The obligation under subparagraph 1. shall include only that amount of each covered claim which is in excess of $100 and is less than $300,000,except that policies providing coverage for homeowner's insurance shall provide for an additional $200,000 for the portion of a covered claim which relates only to the damage to the structure and contents.

3.a. Notwithstanding subparagraph 2., the obligation under subparagraph 1. for shall include only that amount of each covered claim which is in excess of $100 and is less than $300,000, except with respect to policies covering condominium associations or homeowners' associations, which associations have a responsibility to provide insurance coverage on residential units within the association, the obligation shall include that amount of each covered property insurance claim which is less than $100,000 multiplied by the number of condominium units or other residential units; however, as to homeowners' associations, this sub-subparagraph subparagraph applies only to claims for damage or loss to residential units and structures attached to residential units.

631.54 Definitions.--As used in this part:

(5) "Homeowner's insurance" means personal lines residential property insurance coverage that consists of the type of coverage provided under homeowner's, dwelling, and similar policies for repair or replacement of the insured structure and contents, which policies are written directly to the individual homeowner. Residential coverage for personal lines as set forth in this section includes policies that provide coverage for particular perils such as windstorm and hurricane coverage but excludes all coverage for mobile homes, renter's insurance, or tenant's coverage. The term "homeowner's insurance" excludes commercial residential policies covering condominium associations or homeowners' associations, which associations have a responsibility to provide insurance coverage on residential units within the association, and also excludes coverage for the common elements of a homeowners' association.

631.65 Prohibited advertisement or solicitation.--No person shall make, publish, disseminate, circulate, or place before the public, or cause, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in a newspaper, magazine, or other publication, or in the form of a notice, circular, pamphlet, letter, or poster, or over any radio station or television station, or in any other way, any advertisement, announcement, or statement which uses the existence of the insurance guaranty association for the purpose of sales, solicitation, or inducement to purchase any form of insurance covered under this part.

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