A potentially landmark ruling from a California judge has raised concerns over one-fifth of the state’s home insurance market. Los Angeles Superior Court Judge Stuart M. Rice determined that the California FAIR Plan’s approach to handling smoke damage claims is unlawful. This decision affects millions of everyday homeowners just like you. It would similarly remake insurance practices within the state, particularly as the state contends with increasing threats from wildfires.
The FAIR Plan was originally designed as a temporary stopgap for homeowners who cannot find adequate insurance. It has been criticized heavily for its strict enforcement of the rules on comprehensive smoke damage claims. For years, the company has been under fire for refusing these claims. First, they limit their payouts by requiring policyholders to show proof of permanent physical changes to their properties. Judge Rice’s ruling is consistent with the California Department of Insurance, which has a history of asserting that this threshold is unlawful.
Jay Aliff, below, filed that suit in 2021. His house next to Lake Tahoe was burned in the Mountain View fire in November 2020. Aliff applied for compensation from the FAIR Plan. Almost immediately, he was drawn into a contentious battle over whether smoke damage coverage was enough.
Aliff’s attorney, Dylan Schaffer, called the ruling a watershed moment in California insurance law.
“It is the most important decision in California insurance law in decades.” – Dylan Schaffer
The consequences of this ruling go far beyond any individual case. The FAIR Plan is now insuring close to 550,000 residential policies, more than quadrupling the number it insured in 2020. Such expansion would have a dramatic impact on the way insurers process wildfire-related claims. Thousands of homeowners affected by the recent Palisades and Eaton wildfires are still navigating the arduous process of seeking coverage.
Judge Rice recognized that the FAIR Plan’s language was indeed narrow. He noted that it limits coverage in a manner that an average policyholder would not expect and lacks clarity and conspicuousness, two criteria necessary for language to be enforceable.
“This language limits coverage reasonably expected by an insured in a manner which is not conspicuous, plain and clear.” – Judge Stuart M. Rice
He further critiqued the plan’s reliance on physical evidence for claims, highlighting the difficulties faced by insured individuals:
“Being unable to resort to their own senses or laboratory tests, it is entirely unclear how an insured could determine whether a particular loss is covered or not.” – Judge Stuart M. Rice
The decision couldn’t have come at a more pivotal time. As we’ve seen firsthand with the state’s growing risk of catastrophic wildfires, California homeowners are paying the price with skyrocketing uncertainty over their insurance. Reports from urban wildfires indicate increased levels of heavy metals and toxic substances—such as lead and polycyclic aromatic hydrocarbons—associated with serious health risks.
Each time the FAIR Plan casts another long shadow over the state with another basic, high-premium policy, anxieties about its long-term sustainability increase.
“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.” – Hilary McLean, spokesperson for the FAIR Plan
This ruling sets a very important precedent, according to Schaffer, drawing a line that insurance carriers cannot cross when it comes to avoiding responsibility.
“This draws a line in the sand as it relates to where carriers can start carving out their liability and avoiding liability.” – Dylan Schaffer
