The California Department of Insurance published a press release announcing that it is taking legal action against the California FAIR Plan Association, following numerous consumer complaints regarding the denial of smoke damage claims.
The Department alleges that the denial of smoke damage claims violates consumer protection laws and unfair claims practices. They have reviewed consumer complaints over the last few years and found at least 418 violations, with many of them coming from the Palsades and Eaton Fires.
The Department cites violations of California Insurance Code section 790.03, which include misrepresenting policy terms, not fairly investigating claims, and denying legitimate claims.
A lot of the issue stems from a 2017 change in policy language, which changed the definition of “direct physical loss” to include permanent physical changes to covered property. The FAIR plan relies upon this definition to deny many smoke damage claims. In 2024, the California Supreme Court ruled that smoke damage may be covered under a policy that insures against direct physical loss.
In May 2025, the Department sent a formal legal directive stating the FAIR plan’s use of “permanent damage” in its definition of “direct physical loss” is unlawful and unenforceable. On July 31, 2025, they also filed a cease and desist order. The FAIR plan can be penalized up to $5,000 for any unfair or deceptive act found not to be willful, and up to $10,000 for any willful violation.
The press release can be found here.