Massachusetts Governor Mitt Romney signed insolvency fund reform legislation that will create “a high-net-worth exclusion.” The legislation was supported by the American Insurance Association (AIA).

The law defines a high-net-worth insured as a policyholder with a net worth exceeding $25 million on Dec. 31 of the year before the year in which the insurer became insolvent. The Massachusetts Insurers Insolvency Fund (MIIF) will not be obligated to pay first-party claims to a high-net-worth insured. Government entities are not included in the definition.

“There is, in every state, an insolvency fund,” said Michael Moran, spokesperson for American Insurance Association. “When insurers go insolvent, trustees from that company pay the claims they can, but very often there are claims still pending after the insolvent insurer ceases to exist. These pending claims come to the insolvency fund to be paid out over a period of time. What this law says is that high-net-worth insureds — be that an individual or company with a net worth of more than $25 million — cannot make a first-party claim against the insolvency fund. There is always pressure to meet the demand, and the public policy rationale is that you want to pay the claims to the people who need it most first with the available dollars.”