The national press is abuzz with the news that insurance giant AIG may be headed toward bankruptcy as the fallout from the sub prime mortgage mess continues. Since AIG writes a LOT of insurance in NY, and we have several clients who were injured in car crashes by defendants insured by AIG, people are naturally wondering how this may affect their personal injury case. The answer we are giving is a simple one – don’t worry yet.
If you are insured by AIG, they will continue to pay for your defense and indemnify you for any judgment obtained against you up to the policy limits. If you were injured as a result of the negligence of someone insured by AIG, the policy remains in effect as of this moment, and the policy limits remain available to satisy any judgment you may obtain. This situation will change, though, the minute AIG files for bankruptcy.
In the event AIG does file for bankruptcy, this doesn’t mean your case goes down the tubes. Understanding why requires a basic understanding of how insurance companies work, which I will attempt to explain. On an ongoing basis, insurance companies are required to keep a certain aount of money on hand as “reserves”. The reserves are meant to be sufficient to cover all outstanding claims against the insurance company. A reserve is set in each individual case. Some cases will be under reserved, and some cases will be over reserved, but they generally average out. In the event that AIG does file for bankruptcy, New York State has a liquidation bureau that would take over the handling of all cases, hire attorneys to defend AIG insureds and pay any judgments obtained out of these reserved funds.
Even if AIG does file for bankruptcy, that doesn’t mean that your case must be settled at a discount. If the company has reserved its cases correctly, there should be sufficient funds to cover all cases. This won’t stop AIG attorneys from attempting to use this as a negotiation strategy, though. I have personally had attorneys argue that because the insurance company in a case I was handling was in bankruptcy, I would have to accept less money than the case was worth. Unbelievable logic isn’t it? My client, who has done nothing wrong, is injured by by their insured, but I should accept less money because the insurance company can’t manage its business without going bankrupt? Full value can still be obtained, as we have demonstrated in the past, but the wise practitioner will push their case to a conclusion as soon as possible. When you know that there is a limited pot of money to deal with, you never want to be at the end of the line!
Thanks for reading,
Adam M. Gee, Esq.
NY and PA Personal Injury and Malpractice Attorney
Ziff, Weiermiller, Hayden & Mustico, LLP
303 William Street
Elmira, NY 14901
Here are a couple links to stories about the AIG mess.