The Net Worth Exclusion For Guaranty Funds Explained

Imagine this scenario–Mega Store has its primary insurance coverage with Super Insurance Company, which was recently declared insolvent and ordered liquidated by a court; Super Insurance was domiciled in Mega Store’s home state (a small southern state). Super Insurance Company also insured a number of other large retailers and corporations around the country in addition to writing some personal lines. Super ran into financial difficulties due to the severe underpricing of their various lines of business along with excessive losses with a bit of corporate fraud thrown in on top, thus rendering them statutorily insolvent and unable to pay their claims. The various state guaranty associations (GAs) are triggered by the liquidation order to fulfill their statutory obligations.

Mega Store is worth billions of dollars. Their primary insurance policy limits and outstanding claims amounts alone would exhaust the entire yearly guaranty assessment capacity of the other than auto assessment account for that guaranty association even with the application of the per claim statutory limitations.