A consumer advocacy group has taken legal action against the California Department of Insurance and its commissioner, Ricardo Lara. They want to stop new surcharges that could add hundreds of millions of dollars to homeowners’ insurance bills across the state.
Consumer Watchdog announced the lawsuit, claiming that these surcharges stem from a decision made by the commissioner last summer. This decision allows insurance companies involved in the California FAIR Plan, which serves as the state’s last-resort insurer, to pass on costs to policyholders. These costs arise when the FAIR Plan needs to assess these companies for funds after disasters, like the recent wildfires in Southern California.
According to Consumer Watchdog, homeowners could end up paying as much as $500 million of a $1 billion FAIR Plan assessment approved recently, following the Palisades and Eaton Canyon wildfires. Ryan Mellino, a staff attorney for Consumer Watchdog, criticized the decision, stating that it unfairly burdens homeowners and renters while primarily benefiting the insurance companies involved. He emphasized the need to protect Californians from what he calls an unjust socialization of losses that should not fall on the public.
In response to the lawsuit, the American Property Casualty Insurance Association (APCIA) described the action as reckless and harmful. Denni Ritter, a vice president at APCIA, argued that blocking the recovery of costs would threaten the FAIR Plan, which is essential for homeowners who cannot find insurance elsewhere. Ritter stressed that spreading these costs across a broader group of insured customers is crucial for stabilizing California’s insurance market.
Gabriel Sanchez, a spokesperson for the California Department of Insurance, echoed these concerns, stating that the lawsuit could hinder access to necessary insurance options for homeowners, small businesses, and nonprofits. He added that it undermines efforts to improve competition in the market, which is vital for helping people move from the limited FAIR Plan back to standard insurance options.
Consumer Watchdog’s petition claims that the decision to allow insurers to shift costs to homeowners was made without public input, violating the Administrative Procedure Act. They also argue that this practice contradicts the FAIR Plan statutes, which do not allow for such pass-throughs and require insurance companies to share in both profits and losses.
While Consumer Watchdog acknowledges the need for changes to the FAIR Plan, they argue that the solution should not involve a bailout for insurance companies at the expense of policyholders. They believe that California homeowners have already faced enough challenges and that these pass-throughs only add to their burdens.
In defense, Ritter noted that insurers have already contributed significantly to the FAIR Plan’s solvency, having paid tens of billions in claims and more than $500 million to support it, even without collecting premiums from FAIR Plan policyholders.
The outcome of this lawsuit could have significant implications for California homeowners and the insurance market as a whole.