California FAIR Plan accused of selling illegal home insurance policies
Author: Bob Egelko
Original article here.
Hundreds of thousands of Californians in wildfire-prone areas have been sold insurance policies by a state-regulated company that illegally fail to protect them from all the damage that fires can cause, a group of homeowners alleged in a lawsuit filed Tuesday.
The suit, filed in Alameda County Superior Court, targets the California FAIR Plan, which is run by representatives of major insurance companies and provides homeowner coverage in locations that individual insurers have been increasingly reluctant or unwilling to cover because of wildfire risks. More than 365,000 homes are covered by FAIR Plan policies, said Dylan Schaffer, a lawyer for the plaintiffs.
But the suit also accuses the California Department of Insurance, led by Commissioner Ricardo Lara, of failing to enforce state laws that set standards for the policies. The department notified the FAIR Plan in 2021 that its policies failed to comply with the law but has allowed the practice to continue, Schaffer said.
“Thousands of customers have been cheated, every single day, and CDI has done nothing,” the attorney said in an interview after filing the suit.
The Department of Insurance and the FAIR Plan both declined to comment on the lawsuit.
Schaffer is litigating a separate suit, in Los Angeles, on behalf of 1,000 or more homeowners across California who say the FAIR Plan wrongly denied their insurance claims. Tuesday’s suit does not seek damages for lost insurance benefits, only a court order requiring the insurance organization to comply with the law and increase the scope of wildfire coverage in all of its California policies.
The proposed statewide class action was filed by homeowners in rural areas of Fresno and Madera counties, a third in the Los Angeles suburb of Calaveras and the fourth in Oakland — since wildfires, Schaffer said, have become a danger throughout the state.
The focus of the case is the Department of Insurance’s legal requirement that a homeowner’s wildfire insurance will cover all “direct physical loss” caused by fires and smoke. Since at least 2017, the suit said, FAIR Plan wildfire policies have covered only permanent physical damage, and smoke damage that can be seen or smelled.
In one case that was recently settled, Schaffer said, a home near Santa Cruz was inundated by smoke and debris from a nearby fire for 30 days in 2020. When the owners asked for coverage, he said, the FAIR Plan told them to clean it themselves, and refused to pay for the cleanup or the removal of damaged insulation, carpeting, or ducts inside the walls that carried heating and air conditioning.
The suit said the Department of Insurance, under then-Commissioner Dave Jones, initially told the FAIR Plan in 2017 that it could continue with the “permanent physical damage” requirement. But after hearing more complaints from homeowners, the suit said, the department, under Lara, told the insurance organization in January 2021 that it must change its policies.
A May 2022 letter from Lara’s department to the FAIR Plan, quoted in the lawsuit, said that “loss caused by fire does not require permanent physical changes” to be eligible for coverage. But the suit said the FAIR Plan made no changes to its standard policy, and the department took no action.
