California FAirsize FAIR Plan Faces Legal Heat for Alleged Policy Shortcomings

Oakland, Calif. — Tensions run high in California where a recent lawsuit filed in Alameda County Superior Court has hurled serious accusations against the California FAIR Plan. The lawsuit alleges that the insurer’s standard policies are not only providing inadequate coverage but are also breaching state laws that safeguard policyholders against fire damage.

The California FAIR Plan, established as a last-resort insurance pool, is under scrutiny for allegedly offering coverage that falls short of the state-mandated minimums for fire insurance, essential for the residents of a state prone to wildfires.

According to the legal complaint spearheaded by Kerley Schaffer LLP, the real controversy circles around how the FAIR Plan defines terms such as “direct physical loss.” The plaintiff argues that the Plan’s delineation curtails coverage unjustifiably since it recognizes only permanent alterations to properties, blatantly ignoring smoke damage unless it’s detectable by sight or smell by an average person. Such restrictions are deemed to contradict comprehensive coverage norms dictated by California insurance codes.

The implications of these inadequacies came to the forefront as, from 2017 onwards, the FAIR Plan allegedly dismissed hundreds of claims related to fire damage, a period during which the insurer’s market share in California’s homeowner insurance sector grew from 1.6% to 3.1% in 2022.

The lawsuit also throws light on a problematic 2016 policy amendment approved by the FAIR Plan. Initially promoted as minor, these changes later revealed significant reductions in coverage, according to the plaintiff. These modifications led to denial of claims that previously would have been considered valid under older policy stipulations. The exposed reduction in coverage led to an investigation by the California Department of Insurance (CDI), which concluded in 2021 that the FAIR Plan’s policies violated state regulations and demanded remedial actions including a policy revision.

Despite these instructions, the CDI’s demands have seemingly been ignored till date. Dylan Schaffer of Kerley Schaffer voiced disappointment over the enforcement of these regulatory requirements. “We are disappointed that (Insurance) Commissioner (Ricardo) Lara has not enforced the CDI’s findings more aggressively, thus allowing continued inadequacies that potentially jeopardize the well-being of thousands of Californians,” Schaffer expressed.

The lawsuit does not seek damages but aims to compel the FAIR Plan to adhere to the 2021 CDI’s findings and rectify their policy offerings. The intent is clear: to force a correction that aligns the FAIR Plan’s operations with California insurance laws, unless the CDI intervenes directly.

As it stands, the class potentially impacted by this suit ranges between 350,000 and 400,000 policyholders. With a court hearing scheduled for Aug. 8, the outcome could set a significant precedent on how minimum insurance coverage standards are enforced in wildfire-prone areas like California.

The case is not just pivotal for California but is being closely watched by policymakers and insurance stakeholders nationwide, as it might influence how insurance minimums are structured and enforced across different states facing similar natural disaster risks.