Lately, there have been a number of insurance company insolvencies in the news. Since insolvencies don’t happen everyday, how policies, claims and even commissions are handled is not familiar to many. This article takes a quick look at the issue of unearned commissions, and what happens when an insurer is in liquidation and there are unearned commissions on policies they already sold.
In the liquidation proceedings of an insolvent insurer, one of the statutory responsibilities of the receiver is to identify and gather all of the assets of the company, and then liquidate and distribute them over time according to the statutory priority scheme. One of the assets that a receiver must gather is the unearned commission paid to agents prior to insolvency and that remains unearned as a result of the cancellation of the underlying insurance policies, usually 30 days post-insolvency, due the liquidation of the company. Insurance agents are required under the receivership laws to return any unearned commission to the liquidation estate.
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