Judge Greenlights Coverage Expansion for CA FAIR Plan

A Los Angeles Superior Court judge ruled on Nov. 27 that California’s insurance commissioner can order the state’s home insurer of last resort to expand its home insurance offerings. It’s the second time the courts have ruled in the state’s favor on the issue.

“With insurance companies increasingly dropping their customers due to wildfire risk, homeowners depend on the FAIR plan as the insurer of last resort for their coverage,” California Insurance Commissioner Ricardo Lara said in a press release following the first favorable ruling in 2021. “The court ruling affirms my authority that the FAIR Plan must offer broader, more comprehensive insurance protection for consumers.”

Lara’s order to expand FAIR coverage

In November 2019, Lara first directed the FAIR Plan to begin offering a comprehensive home insurance policy. Lara mandated that the new policy should include features such as water damage, personal liability protection, and higher dwelling coverage limits — coverages that are standard in most traditional home insurance policies.

Currently, FAIR Plan policies only cover damage from fire and have a combined dwelling coverage limit of $1.5 million.

FAIR Plan policyholders who want coverage similar to a standard home insurance policy must purchase additional insurance — known as DIC or “difference in condition” policies — to get that level of coverage. Lara’s order would eliminate the need for DICs.

“The prohibitive cost of DIC policies, and confusion about what DIC policies cover, supports the commissioner’s desire to have an expanded policy as an option for homeowners,” Superior Court Judge Curtis A. Kin wrote in his decision.

Lara’s order directed the FAIR Plan to:

• Begin offering a comprehensive home insurance policy

• Increase the combined dwelling coverage limit to $3 million

• Offer a no-fee monthly payment plan

Allow policyholders to pay fee-free by credit card or electronic funds transfer

FAIR Plan pushback

The FAIR Plan pushed back against Lara’s order in the courts, suing to contest the commissioner’s authority to require the proposed changes. In its lawsuit, the FAIR Plan argued that its policyholders already have access to more comprehensive coverage through DICs.

Further, the FAIR Plan petition argued, Lara’s order would create a significant financial burden for the plan and ultimately harm FAIR Plan policyholders, employees, and the California insurance industry.

In July 2021, an L.A. County Superior Court judge rejected the FAIR Plan’s arguments, ruling in favor of Lara. The most recent ruling upholds the original court ruling, following an appeal by the FAIR Plan.

California statute established the FAIR Plan in 1968 to be the state’s insurer of last resort for homeowners who couldn’t find traditional home insurance. The FAIR Plan is an insurance pool of all insurance companies licensed to sell property insurance in the state. Although it’s meant to be a temporary safety net for homeowners, California’s insurance crisis has pushed more homeowners into the FAIR Plan.

What’s next

While the FAIR Plan is intended to be an insurer of last resort, it represents about 3.1% of the state’s homeowners insurance market, according to data from the Insurance Commissioner’s office. And as of September 2023, the number of FAIR Plan policyholders has grown more than 20% since 2022.

“While we continue to pursue long-term insurance solutions to safeguard Californians from climate change, it’s essential that homeowners have a strong short-term option in the California FAIR Plan,” Lara said in a Nov. 29 statement. “Requiring Californians to purchase separate insurance policies only results in higher costs and greater confusion, leaving them on the hook for uninsured damages from a winter storm or burst pipe. Many FAIR Plan policyholders are seniors or families who cannot afford to pay these unexpected costs out of pocket.”

“The sooner that the FAIR Plan can offer a more comprehensive policy option, the better for many Californians,” he said.