If an unauthorized insurer fails to pay a claim, what may occur?

When an unauthorized insurer fails to pay a claim, the situation can complicate the responsibilities of those involved in the procurement of the insurance coverage. In these circumstances, the individual or entity that procured the coverage may be held liable for the claim. This is based on the principle that procuring insurance from an unauthorized insurer can create a legal obligation for the broker or agent to ensure that the coverage is valid and that claim payments are secured.

The liability arises because the person who arranged for the insurance is seen as responsible for the failure to secure adequate protection through a licensed carrier. This means they may have to compensate the insured if the unauthorized insurer does not fulfill its obligations.

Understanding this dynamic is essential for anyone involved in insurance procurement, as it highlights the importance of working with authorized and licensed insurers to avoid potential liabilities stemming from uncovered claims. This principle encourages careful consideration and due diligence when selecting an insurer to ensure that all parties are protected within the regulatory framework of insurance operations.