In a free market economy, companies frequently go out of business, or have financial, operational and management issues that need to be addressed by their functional regulator. The reasons for their difficulties can be very technical, market driven, or due to fraud. Even though insurance companies are one of the most highly regulated industries in the United States, they really are no different than any other company in this regard.
One of the primary responsibilities of an insurance regulator is to maintain a safe and responsible market for their state’s citizens. When a company puts their policyholders or the general public at risk, they must be taken out of the market, or the conditions creating the hazard corrected through a formal or informal supervision. A state controlled receivership/supervision proceeding is the preferred and federally sanctioned method with which to do that: McCarran-Ferguson Act, 15 U.S.C. 1011 (1945).
The act mandates that a federal law that does not specifically regulate the business of insurance will not PRE-EMPT a state law enacted for that purpose. A state law has the purpose of regulating the insurance industry if it has the "end, intention or aim of adjusting, managing, or controlling the business of insurance" (U.S. Dept. of Treasury v. Fabe, 508 U.S. 491, 113 S. Ct. 2202, 124 L. Ed. 2d 449 ).
Because of this, insurance companies are not eligible for federal bankruptcy protection/reorganization, and while similar in many respects, an insurance receivership/supervision under the control of a state court/regulator and specifically designed statutory authority aimed at protecting consumers, should not be confused with a commercial bankruptcy, which is controlled by debtors and creditors through the federal court system, under the federal Bankruptcy Code.
“In Insurance, it does not make sense to separate financial regulation and oversight from consumer protection because the most basic consumer protection is financial solvency.”Ralph Tyler – Former Maryland Insurance Commissioner, in response to the current administrations CFPA (Consumer Financial Protection Act) proposal, July 2009.
Some insurance commissioners view a domestic insurance insolvency or troubled company as a regulatory failure, when in fact it may not be true. Some might suggest this should actually be regarded as a proactive regulatory success in the state regulation of insurance.
A professional administrator for your potential, existing receiverships or supervisions needs to be retained to manage a new estate or close old ones, and/or provide the necessary regulatory feedback for the Commissioner to consider the best course of action on a going forward basis.
Receivership "In law, the judicial appointment of a person, a receiver, to collect and conserve certain assets and to make distributions in accordance with judicial authorization. A receivership is properly an intermediate or incidental step toward some other principal objective and not generally the object of litigation. The principal objective may be the preservation of the assets pending a decision as to who should receive the property, or it may be the liquidation of the assets and the distribution of the proceeds to the parties entitled to them."
— Britannica Concise Encyclopedia