Division of Rehabilitation and Liquidation
All aspects of the liquidation process in Florida are governed by Chapter 631, Part I, Florida Statutes. This is Florida’s version of the National Association of Insurance Commissioners (NAIC) model “Insurer’s Rehabilitation Act”. Statutes relating to the various guaranty associations are found in Chapter 631, Parts II through V. An action under Chapter 631, Part I, Florida Statutes, to appoint a Receiver is called a delinquency proceeding. The Department may be appointed Receiver for conservation, rehabilitation or liquidation. We will focus on liquidation here.
When the Florida Department of Financial Services determines that a Florida domiciled insurer is insolvent or is operating in a financially hazardous manner, the Department, through the legal staff of the Division of Rehabilitation and Liquidation, petitions the Leon County Circuit Court for an order requiring the insurance company to show cause why the company should not be placed into liquidation. The grounds that the Department may use to seek such an order are found in sections 631.051 and 631.061, Florida Statutes. If the Court agrees with the petition a hearing date is set. If the board of directors of the company either joins in the petition or consents, a liquidation order is issued appointing the Department of Financial Services as Receiver to liquidate the company. If the company contests the Department’s petition, then a hearing is held on the date set. Should the Court grant the Department’s petition, the Department is appointed Receiver. A final order (when the 30 day period to file an appeal expires) of liquidation is required to trigger the various guaranty associations and the consumer assistance plan.
Under the Court's supervision the Receiver as Liquidator is charged with gathering (marshaling) the company's assets, converting them into cash and distributing the cash to claimants of the company. The statute establishes a set of priorities for the payment of claims. There are ten classes of claims. All approved claims in a class must be paid in full before any payment is made to the next lower class. Within a class, all approved claims are paid equal pro rata shares if there are not sufficient funds to pay the class in full. The first priority is payment of the administrative expenses of the estate and any claim handling expenses incurred by any Guaranty Fund that may be involved, followed by payment of claims under the policies or contracts of insurance written by the company. The last priority is payment to the owners of the company.
Shortly after the liquidation order is issued, staff from the Department's Division of Rehabilitation and Liquidation take possession of the company's offices, equipment, records and assets. At that time a notice is sent to all potential claimants advising them of the liquidation and telling them the process they must follow to perfect their claim against the estate. The statute requires that all property and casualty insurance policies are cancelled within 30 days of the liquidation order.
After all assets are converted to cash and all claims are prioritized and valued, and all objections to the valuation of the claims resolved, the Receiver will file a petition with the Leon County Circuit Court asking for authority to distribute the cash according to the priority scheme. In Florida the liquidation process can take, on average, five to nine years.
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