In the usual priority classes of asset distribution, which is the third item?

• A. Cost and expenses of administering the liquidation
• B. Partial payment of debts to employees for service rendered within one year of the order for liquidation
• C. All claims for policy losses incurred
• D. Claims for unearned premiums and claims of general creditors

Answer: (C)

When an insurer goes into liquidation, assets are distributed in a fixed order. First come the costs and expenses of administering the liquidation, since these are necessary to wind down the company. Next are wages owed to employees for services rendered within a year of the liquidation order. After those obligations are covered, the next set of claims takes priority: all claims for policy losses incurred. These are the insureds’ claims for losses that have already occurred under the policies, and they’re ranked ahead of other remaining liabilities. Only after policyholders are addressed do unearned premiums and claims of general creditors get paid. This ordering reflects protecting the insureds’ interests and ensuring that policy-related liabilities are settled before refunds of prepaid premiums or other creditors.