The California Department of Insurance has received more than 220 complaints from FAIR Plan policyholders about smoke damage claim denials. (Credit: Pierce/Adobe Stock)
The California Department of Insurance (CDI) has filed an Order to Show Cause against the state’s FAIR Plan after multiple consumer complaints about denied smoke damage claims.
The department has received more than 220 complaints from FAIR Plan policyholders who have had their smoke damage claims denied following the devastating Eaton and Palisades fires in January. The claims have been denied based on a requirement for “permanent physical damage” in FAIR Plan policies.
The CDI order cites the FAIR Plan for violations of the state’s insurance code and requires the insurer to appear at a hearing and justify the denials. It also includes a cease and desist order, with penalties, requiring the plan to refrain from further denial of smoke damage claims.
The “permanent physical damage” language was added to FAIR Plan policies in 2017 and has been the basis for years of smoke damage claim denials — and lawsuits. Several courts over the years have ruled in favor of policyholders, and in May 2024, the California Supreme Court ruled that smoke damage should be covered.
The CDI asked the FAIR Plan to align with the court ruling, but those changes weren’t made. California Insurance Commissioner Ricardo Lara ordered insurers to pay smoke damage claims earlier this year, but the denials continued.
“I’ve spoken with wildfire survivors who would rather lose their homes to flames than endure the stress and confusion of navigating smoke damage claims,” Lara said in a statement. “This is unacceptable. This issue has persisted after every fire and has become even more urgent in the aftermath of the largest urban fires in history, the Palisades and Eaton fires. These consumers’ message is clear: they need assistance, not obstacles. We will not tolerate insurance companies breaking the law and denying Californians the coverage they deserve, including the FAIR Plan.”
In a statement to Newsweek, the FAIR Plan said it has been working with the CDI to update and clarify its policy language and will continue to do so.
"Our goal is to continue providing fair and reasonable coverage for wildfire-related losses while maintaining the financial integrity of the FAIR Plan for all policyholders,” the statement said. “The FAIR Plan welcomes the opportunity to engage in this process and to continue strengthening its efforts to serve policyholders with transparency, fairness and compassion."
The FAIR Plan has been stretched thin over the years. The plan is set up to be the state’s insurer of last resort, but it has become many residents’ only option as carriers have dialed back coverage in the state. In June, the plan reported a total exposure of $650 billion, a 289% increase since 2021.
Losses from the Palisades and Eaton fires were so large that the plan had to assess its participating insurers $1 billion to help cover costs.
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