by John D. Darer CLU ChFC CSSC RSP
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") amended the bankruptcy code and continued the long standing bar against insurance company bankruptcies
The Federal Bankruptcy Code expressly denies bankruptcy liquidation relief to insurance companies by providing that:
Neither a domestic insurer nor "a foreign insurance company", engaged in such business in the United States" are eligible for relief under Chapter 7. 11 U.S.C. § 109(b)(2)-(3).
Similarly, Congress denied insurers the ability to reorganize or liquidate as a going concern under Chapter 11 since (with few exceptions) only an entity that may be a Chapter 7 debtor is eligible for Chapter 11 relief. 11 U.S.C. § 109(d).
Despite this readily available public information, I'm amazed by the multitude of information on the Internet, some even written by credentialed advisers, which purports to answer the question "What if my insurance Company Goes Bankrupt?"
Just look at the headlines on a Google search for "insurance company bankruptcy"
An excellent white paper written by Jackson, MS lawyers Robert B. House, David L. Martin and Jeffrey R. Barber for the Federation of Regulatory Counsel, Inc. does a nice job of explaining Bankruptcy Code application to insurers. see: FORC Journal:Vol. 19 Edition 4, Winter 2008