FAIR Plan Asks Court to Stop California Insurance Commissioner’s Order

December 13, 2019

Note: This is been updated with a statement from Lara’s office.

The FAIR Plan today filed a petition for a writ of mandate seeking to have a court annul, vacate, or withdraw an order issued last month by the California insurance commissioner calling for the Fair Plan to begin offering a comprehensive homeowners (HO-3) coverage, in addition to its current dwelling fire-only coverage, by June 1, 2020.

The order from California Insurance Commissioner Ricardo Lara also directed the FAIR Plan to take actions that were already underway by the FAIR Plan, but, if implemented as directed by the order, could compromise the privacy and security protections of policyholders’ financial data, an announcement from FAIR Plan states.

The writ, California FAIR Plan Association Vs. Ricardo Lara, in His Official Capacity as Insurance Commissioner of the State of California, was filed in the the Los Angeles Superior Court.

It argues that Lara’s order violates the law and it exceeds the commissioner’s authority.

Lara last week addressed a reported lack of insurance availability in wildfire-prone areas of the state by issuing a mandatory one-year moratorium on insurance companies non-renewing policyholders in certain areas affected by wildfires. The moratorium covers 800,000 homes in ZIP codes adjacent to recent wildfire disasters under Senate Bill 824, also known as the Wildfire Safety and Recovery Act. He also called on insurance companies to voluntarily cease all non-renewals related to wildfire risk statewide until Dec. 5, 2020, in the wake of Gov. Gavin Newsom’s declaration of statewide emergency due to fires and extreme weather conditions.

That was criticized by an insurance industry representative who said Lara will have to choose whether he wants insurers to charge higher rates or to stop writing homeowners insurance in fire-prone areas.

The move by the FAIR Plan today may have been the only one to be made by the state’s property insurer of last resort. A CDI official said earlier this month that the ordered changes could possibly go into effect as early as the next few months, if no legal challenges are offered up by the organization.

According to the statement, the FAIR Plan filed the writ petition after attempting to work with the California Department of Insurance to determine an alternative to the order that would expand options for California homeowners seeking property insurance without unduly burdening them with additional risks and costs.

“We have a responsibility to protect our policyholders and ensure their continuing access to affordable and reliable basic property coverage,” said Anneliese Jivan, president of the California FAIR Plan Association, said in a statement. “We appreciate the efforts of the commissioner to address the impact of California’s devastating wildfires on homeowners. Unfortunately, this order, as written, would negatively impact consumers and further destabilize the voluntary insurance marketplace because the order provides no incentive for the private market to offer insurance in areas at risk of wildfire. We regret having to take this action, but we will do everything we can to continue to protect policyholders and provide stability in the insurance marketplace.”

The writ argues that the Commissioner’s order violates the law, and would force the FAIR Plan out of compliance with its statutory mandate to provide basic property insurance, serve as a stabilizing force in the insurance marketplace, and to maintain actuarially sound rates.

CDI spokespersons issued the following statement on behalf of Lara in response to today’s FAIR Plan action:

“I took these actions on behalf of California consumers throughout the state who are struggling to find adequate coverage to protect their homes. I will fight for consumers against this industry-driven lawsuit. Insurers can’t have it both ways; they cannot continue to cancel policyholders at an alarming rate, leaving them with the FAIR Plan as their only option, with woefully inadequate coverage.”

Offering an HO-3 policy as directed by the order would adversely impact homeowners and is contrary to the FAIR Plan’s mission and role in the insurance marketplace, according to the statement.

FAIR Plan rates are required to be actuarially sound, and a FAIR Plan HO-3 policy, as directed by the order, would be more expensive than those that homeowners can purchase through the voluntary market or through a combination of a FAIR Plan policy and Difference-in-Condition coverage, according to the statement.

The order would ultimately limit choice and flexibility for consumers, the statement notes.

The FAIR Plan states that it remains fully supportive of three provisions of Lara’s order: increasing the dwelling policy coverage limits from $1.5 million to $3 million, establishing a credit card payment option, and introducing a monthly payment option. Increasing the dwelling policy limits was approved by the FAIR Plan’s Governing Committee last July. However, as noted in the writ, the FAIR Plan cannot offer the increased coverage limits without the CDI’s approval of a rate change which is needed to ensure that the FAIR Plan’s rates remain actuarially sound and sufficient to cover future losses, according to the statement.

The FAIR Plan is asking the court to vacate the provision of the order that would prevent the FAIR Plan from passing along credit card charge fees to customers that choose that option to pay for their insurance.

Without the ability to charge these fees to the select policyholders exercising this option, the FAIR Plan would be forced to pass them along to all policyholders to share. Passing along credit card fees to customers is standard practice among state agencies and many businesses, according to the statement.

Last week, the FAIR Plan sent a letter to Lara outlining the group’s concerns, including that his order constitutes “a fundamental change in our mission,” it would take up time and divert resources from core activities, and will result in increased operating costs that will be passed along in the form of higher rates for all policyholders.

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