A Consumer Watchdog suit aims to block insurers from charging California customers for $500 million of the costs associated with the LA wildfires earlier this year. (Credit: forenna/Adobe Stock)
A judge has ruled in favor of California smoke damage victims, while the state's insurance department is fighting a suit about whether carriers can recoup some of their LA wildfire expenses through policyholder fees.
On Tuesday, a California judge ruled that the FAIR Plan is violating state law by denying coverage for smoke damage clean-up and remediation.
The case was a lawsuit brought by Jay Aliff, whose home was damaged in the November 2020 Mountain View fire. Aliff said the FAIR Plan offered him a fraction of the money expected to cover remediation costs, telling him that fire debris could be cleaned up and didn’t count as a direct physical loss.
The FAIR Plan has come under fire for years for denying smoke damage claims. More recently, many LA wildfire victims have sued the plan and its member insurers for denial of their smoke damage claims. In response to the complaints, California Insurance Commissioner Ricardo Lara announced last month that he is creating a smoke damage task force to standardize coverage requirements and clean-up best practices.
Los Angeles County Superior Court Judge Stuart Rice ruled that the FAIR Plan’s policy violates the state’s insurance code, which provides coverage for all “loss by fire” damage. In a statement to the Los Angeles Times, the FAIR Plan said it’s working to update its policy language and likely won’t pursue an appeal.
Additionally, last Monday, the California Department of Insurance filed a demurrer in Los Angeles Superior Court requesting the dismissal of a Consumer Watchdog lawsuit against the department. A demurrer is a strong statement of opposition to a lawsuit.
The suit aims to block insurers from charging California customers for $500 million of the costs associated with the LA wildfires earlier this year.
Insurers doing business in California were ordered in February to pay $1 billion into the FAIR Plan to help it pay claims related to the fires. Under new regulations rolled out by Lara last year, insurers can recoup half of that cost from policyholders in the form of a temporary fee.
The lawsuit alleges that Lara overstepped his authority in issuing the new rule, and it should have received approval from the legislature or other agencies before going into effect. The department’s demurrer disagrees, saying “petitioner’s arguments all fail.”
The American Property Casualty Insurance Association said it supports the department’s move for dismissal, calling it “a necessary step to prevent further destabilization of California’s already fragile insurance market.”
“Blocking FAIR Plan cost recovery would jeopardize the last-resort coverage option for homeowners and push the market closer to collapse,” the statement said. “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.”
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