Insurer Insolvencies and State Guaranty Funds
Although the primary goal of all insurance regulation is the maintenance of insurers' solvency, insurers nevertheless do become insolvent with considerable frequency. For example, there were 372 property-casualty company insolvencies in the United States between 1969 and 1990, 1 and 290 life and health company insolvencies between 1976 and 1991. 2
The United States Constitution gives Congress the power to make "uniform laws" governing bankruptcy 3 and limits the states' power to make laws that "impair" the obligations of contracts (i.e., laws that provide for the alteration or elimination of existing debts). 4 For these reasons, the United States Bankruptcy Code is normally the only insolvency law applicable to individuals or businesses who seek to have debts "discharged" entirely or restructured through the adoption of a plan of "reorganization." The Bankruptcy Code is, however, expressly inapplicable to insurance companies, 5 as well as to banks and savings institutions 6 by virtue of provisions which state that these kinds of entities cannot be "debtors" under the Code. In the case of insurance companies, applicable insolvency provisions are included in most states' insurance laws, and such provisions are usually referred to as "insolvency" or "liquidation" laws rather than "bankruptcy" laws.
A typical insurer insolvency involves obligations and claimants in more than one state. Multistate aspects of insurer insolvencies are addressed under various states' enactments of the NAIC's model "Insurers Rehabilitation and Liquidation Act." (State insurer insolvency and liquidation laws are identified in the columns labeled "Rehab. and Liquidation" in Appendix 3.) All of the state