Judge rules California FAIR Plan used illegal policy for fire claims
A Los Angeles County judge on Tuesday said the California FAIR Plan — considered the state’s home insurance of last resort — unlawfully limited coverage for smoke damage claims in its policy.
That decision was prompted by a lawsuit filed in 2021 by a man whose home, about 100 miles east of Sacramento, burned in a fire.
The man claimed the FAIR Plan did not fully investigate the damage and unlawfully denied parts of his claim because it, in part, relied on an “improper interpretation” of its policy for losses caused by fires.
The state-created but privately funded plan has grown rapidly in recent years as insurance companies have restricted business in California due to rising fire risks. Homeowners turn to it when they have no other insurance options.
The plan is made up of, and backed by, companies that are licensed to write property policies in the state.
For years, it has faced lawsuits and criticism over its handling of smoke damage claims. But concerns have increased rapidly following the devastating fires earlier this year in Los Angeles County that killed 30 deaths and destroyed 16,276 structures
Department of Insurance general counsel Teresa Campbell, in a letter last month, said the agency had received over 100 complaints over the plan’s handling of smoke claims following the Southern California wildfires. Campbell said they showed the plan “continues to rely on unenforceable policy terms to justify denial of smoke claims and/or its refusal to consider all information provided by policyholders as it investigates smoke claims.”
In response to Tuesday’s ruling, department spokesperson Michael Soller said in a statement the agency was investigating the plan’s handling of claims, not just from the fires earlier this year.
“This ruling strongly supports our ongoing efforts.”
Hilary McLean, a FAIR Plan spokesperson, said the plan has worked with the department to “update and clarify our policy language around smoke damage” since last year. Because of that, McLean said the plan is unlikely to appeal the judge’s ruling, which was first reported by the Los Angeles Times.
Attorney Dylan Schaffer, whose case led to the recent ruling, called it “a landmark moment” that would affect the entire insurance industry. He has also accused the backup insurance provider of selling substandard policies in Northern California courts.
Even so, he said the insurance department could have acted earlier to force the plan to change its policy. And that hundreds of people have already retained him to file cases in response to the plan’s handling of smoke damage claims following the LA-area fires.
“Until they dramatically alter their claims handling practices, people are going to keep suing them.”
