Judge Says California FAIR Plan Violates Law; Industry Fights Consumer Group Suit

A judge ruled that the California FAIR Plan’s smoke-damage policy violates state law, while in another matter a lawsuit from a consumer group is drawing concern from insurers that it could push the California insurance market closer to collapse.

On Tuesday, a Los Angeles County judge ruled that by denying coverage for clean-up and remediations, the FAIR Plan is violating state law.

Los Angeles County Superior Court Judge Stuart Rice on Tuesday said that the California FAIR Plan’s policy violates the insurance code because it provides less coverage than what is required by the state’s Standard Form Fire Insurance Policy without making a distinction for smoke damage.

Rice said the FAIR Plan violates the state’s insurance code because it offers less coverage than is required by state policy, which provides coverage for all “loss by fire” damage.

Hilary McLean, a spokesperson for the FAIR Plan, told the LA. Times the plan is reviewing the decision, but “As the FAIR Plan is in the process of updating its policy language to reflect the manner in which claims have been adjusted since last year, it is unlikely to pursue an appeal.”

In the other matter, the industry is taking aim at a lawsuit from Consumer Watchdog that challenges the way the FAIR Plan recovers costs, claiming the current system ushered in as part of several changes made by California Insurance Commissioner Ricardo Lara is unfair.

Consumer Watchdog has argued surcharges will result from a decision reached by the commissioner last year to allow the insurers that comprise and operate the FAIR Plan to pass-through costs to their policyholders when the FAIR Plan is forced to assess those companies for funds after a catastrophe.

The California Department of Insurance disagrees with that assessment on the assessment, and the industry is siding with the CDI.

The American Property Casualty Insurance Association said it is supporting CDI’s demurrer in Los Angeles Superior Court filed on Monday, asking a judge to dismiss a lawsuit by Consumer Watchdog lawsuit on the grounds that it fails to meet the legal standard for a “cause of action.”

“We support the Department of Insurance’s effort to dismiss Consumer Watchdog’s reckless lawsuit—a necessary step to prevent further destabilization of California’s already fragile insurance market,” and APCIA statement reads. “Blocking FAIR Plan cost recovery would jeopardize the last-resort coverage option for homeowners and push the market closer to collapse. It is critical that recovery costs be spread equitably across a broader pool of policyholders to stabilize the system and protect access to coverage for all Californians.”

According to the group, insurers have paid more than $17 billion in claims so far from the L.A. wildfires, with tens of billions more expected. Insurers also replied to a recent FAIR Plan recent assessment by adding an additional $1 billion in funding to support the FAIR Plan’s ability to pay claims.

“Consumer Watchdog’s lawsuit undermines these efforts and would only push California’s insurance system closer to collapse,” the statement reads.

Consumer Watchdog Executive Director Carmen Balber said demurrers are a routine step in litigation, and that the group plans to file its “substantive opposition” on schedule.

“The department’s motion hinges on a narrow ‘ratemaking’ exception that, in our view, does not apply to the Commissioner’s FAIR Plan assessments,” reads an emailed statement from Consumer Watchdog in reply to a request for comment. “Our lawsuit seeks transparent review of these arrangements so wildfire costs are not shifted onto homeowners without legally required public scrutiny.”

The statement noted that “insurers have shared FAIR Plan profits for decades,” and that the flip side of sharing in these profits is that they must absorb the losses instead of the policyholders.

Topics Lawsuits California Legislation

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