California FAIR Plan Won’t Cover Smoke Damage

Ten months after the January wildfires in California, hundreds of homeowners that depend on California FAIR Plan Association (FAIR Plan), the state’s insurer of last resort operated by the insurance industry, are seeing their claims denied. Their homes are still intact but suffered damage and were contaminated by smoke. 

Despite a court loss and sanctioning by state regulators, FAIR Plan has denied policyholders seeking to have their smoke-damaged homes remediated through professional cleaning or replacement of structures and fixtures, such as drywall, insulation, and lighting, the Los Angeles Times reported. 

Last month, Governor Gavin Newsom signed a package to improve the state’s insurer of last resort and help Californians recover from disasters. The legislation gave FAIR Plan new financing mechanisms to more swiftly pay claims, offer better oversight and improved policyholder experience, and add coverage for manufactured homes. Additionally, the California Department of Insurance will be required to consider additional home hardening measures every five years as part of its Safer from Wildfires efforts. 

“The kinds of climate-fueled firestorms like we saw in January will only continue to worsen over time,” Governor Newson said. “That’s why we’re taking action now to continue strengthening California’s insurance market to be more resilient in the face of the climate crisis.” 

In July, California Insurance Commissioner Ricardo Lara took formal legal action against the FAIR Plan for systematically denying and limiting smoke damage claims from wildfire survivors, particularly in the wake of the Palisades and Eaton Fires earlier this year. 

The California Department of Insurance filed an order to show cause against the FAIR Plan after consumer complaints showed a pattern of denying smoke damage claims based on an arbitrary FAIR Plan-defined requirement for “permanent physical damage.” The department’s legal filing follows hundreds of escalating consumer complaints filed with the department against the FAIR Plan and builds on a multi-year investigation, which uncovered at least 418 violations of California’s consumer protection laws. 

“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. “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’ messages are 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.” 

The California FAIR Plan is operated by the insurance industry, not the state. State law requires all property insurance companies doing business in California to participate in the Fair Access to Insurance Requirements (FAIR) Plan, which provides basic fire insurance coverage when homeowners and businessowners cannot find it in the traditional market. It was first created after the Watts Riots of 1965 and resulting major wildfires. It is designed as a temporary safety net—not a long-term solution. 

The Department of Insurance has regulatory oversight of the FAIR Plan to ensure it complies with state law and treats policyholders fairly—the FAIR Plan is not exempt from consumer protection and claims handling requirements in California law. Commissioner Lara has also created the Smoke Claims & Remediation Task Force to develop statewide standards for investigating and remediating smoke damage—a gap that has existed for decades. To date, the department has helped recover more than US$74 million for wildfire survivors through formal complaint intervention.