Insured Is Liable For Damages After Insurer Becomes Insolvent

The ripple effects of the insolvency of Reliance Ins. Co. will continue to be felt for a long time. In one of the latest examples of the ill-effects of Reliance’s failure, the New Jersey Supreme Court found that a business that had purchased a $1 million liability policy from Reliance is liable for most of a potential judgment against the business. The case is Johnson v. Braddy, 2006 WL 229903 (February 1, 2006).
The New Jersey Property-Liability Insurance Guaranty Association (PLIGA), like similar funds in other states, was set up to provide some level of insurance coverage when insurance companies become insolvent. However, typically the state funds provide coverage only up to a maximum of $300,000. In the case, an employee of the Braddy Trucking Co. hit a parked car, severely injuring a man, who sued the company. Braddy had ample insurance, including the $1 million primary policy from Reliance and an umbrella policy from National Union Ins. Co. up to $25 million. However, after the injured party sued Braddy, Reliance was declared insolvent. Braddy asked the court for a grant of summary judgment that, because it had been insured, it was not personally liable for amounts between the $300,000 PLIGA would provide and $1 million, where the excess carrier’s responsibilities would start. The court said that, although it was unfortunate that a party with the foresight to obtain insurance was in Braddy’s position, the company was potentially personally liable for up to $700,000 in damages. From the case, it was unclear the exact amount the injured party is seeking, but it is apparently well above $300,000.

Comments Off on Insured Is Liable For Damages After Insurer Becomes Insolvent

Filed under Duty to Indemnify, Liability Policies

Comments are closed.