A Los Angeles County judge has ruled that the California FAIR Plan’s policy on smoke damage breaks state law by not covering cleanup and remediation costs. The decision came on Tuesday from Judge Stuart Rice, who said the FAIR Plan falls short of the state’s Standard Form Fire Insurance Policy requirements by offering less coverage without making exceptions for smoke damage.
The California FAIR Plan acts as the insurer of last resort in the state, but this ruling highlights that its current smoke-damage policy is insufficient. The state law requires insurance policies to cover all losses related to fire, including those caused by smoke. Judge Rice’s decision pointed out that the FAIR Plan, in denying cleanup coverage, is violating this principle.
A spokesperson for the FAIR Plan, Hilary McLean, told the Los Angeles Times that the organization is reviewing the ruling but does not expect to appeal. The FAIR Plan is already updating its policy language to better reflect how claims have been handled since last year.
In a related issue, a lawsuit from consumer advocacy group Consumer Watchdog has raised concerns among insurance companies, who fear the suit could destabilize California’s fragile insurance market. Consumer Watchdog is challenging how the FAIR Plan recovers costs after catastrophes. Their argument is that recent changes approved by California Insurance Commissioner Ricardo Lara allow insurers to pass those costs onto policyholders unfairly through surcharges.
The California Department of Insurance disagrees with this critique and has backed efforts to dismiss the lawsuit. The American Property Casualty Insurance Association joined the department in filing a demurrer in Los Angeles Superior Court, asking a judge to throw out Consumer Watchdog’s claim. They argue the lawsuit lacks legal grounds and that blocking the FAIR Plan’s cost recovery could jeopardize coverage options for homeowners.
The insurance industry points to the massive payouts already made due to recent wildfires in the Los Angeles area—over $17 billion so far—with much more expected. Insurers have also boosted FAIR Plan funding by $1 billion to keep up with claims demands. The APCIA warned that the lawsuit threatens these efforts and could push the state’s insurance system toward collapse.
Consumer Watchdog’s Executive Director, Carmen Balber, said demurrers are a normal legal process and that the group plans to respond fully. She emphasized that their lawsuit seeks transparency in how wildfire-related costs are shifted onto homeowners. Balber also noted that insurers have shared profits from the FAIR Plan for years and, in return, should bear corresponding losses instead of transferring them to policyholders.
This legal back-and-forth highlights growing tensions in California’s insurance market as it deals with increasing wildfire risks and the challenges of covering widespread damage. The outcome could affect how smoke damage claims are handled and who ultimately absorbs the costs in the face of future disasters.