Insurance Commissioner Ricardo Lara orders FAIR Plan to offer Calif homeowners increased coverage options

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Insurance Commissioner Ricardo Lara orders FAIR Plan to offer California homeowners increased coverage options

Department of Insurance battled insurance carriers in court to affirm Commissioner’s authority to compel California’s “insurer of last resort” to offer homeowners a comprehensive coverage option

SACRAMENTO, Calif. — Insurance Commissioner Ricardo Lara today ordered the FAIR Plan to offer a homeowners policy, in addition to its current dwelling fire coverage, with more traditional homeowner features, such as coverage for water damage, theft, and loss of use. The order requires the FAIR Plan to submit a revised Plan of Operations to the Department of Insurance within 30 days.

The Commissioner’s Order comes after the California FAIR Plan Association (“FAIR Plan”), an association made up of all admitted insurance companies to be the state’s property “insurer of last resort,” sued Commissioner Lara to contest his original order of November 2019. A Court recently upheld the Commissioner’s authority to require the FAIR Plan to offer more comprehensive homeowners policies to those residents who need it, especially in wildfire-risk areas of the state.

“Climate change-intensified wildfire risk is threatening consumers across the state with non-renewals of homeowners insurance, forcing consumers to piece together coverage or risk greater losses,” said Commissioner Lara, who also has issued several moratorium orders to prevent insurance carriers from issuing cancellations and non-renewals to wildfire survivors. “In light of the Court’s ruling, it is time for the FAIR Plan to stop delaying and do what is right by consumers and offer more comprehensive coverage**.** I will continue to use every tool available to protect consumers as we continue to seek long-term solutions.”

The Order will give approximately 200,000 Californians who currently rely on the FAIR Plan to protect their homes a more comprehensive option besides the bare-bones coverage that the FAIR Plan currently offers today. Requiring the FAIR Plan to offer a more comprehensive homeowners’ policy will save consumers from having to purchase a second companion policy to cover other hazards such as premises liability, water damage, and theft.

These changes are in addition to previous changes Commissioner Lara successfully compelled the FAIR Plan to undertake last year, including increasing the combined coverage limit from $1.5 million to $3 million, providing more transparency in their Governing Committee meetings and allowing the Department of Insurance to participate in those meetings, and mandating the FAIR Plan to seek Department approval prior to disbursing any operating profits back to participating insurers.

While the FAIR Plan is intended as a temporary solution, it is important that its product mirrors traditional coverage as much as possible. Many California homeowners have already been affected by planned power outages by utilities, mandatory evacuations, and repeated wildfire threats year after year. Requiring these same homeowners to have to piece together multiple policies to achieve full coverage is needlessly burdensome and can be very costly.

“After meeting with thousands of California homeowners across the state who are struggling to find insurance coverage to protect their homes, I have been implementing a three-part consumer protection plan,” added Commissioner Lara. “My Department has been working to give more power to consumers, expand consumer protections after a disaster, and ensure businesses and homeowners have a competitive insurance market for their insurance coverage. By hearing directly from homeowners, neighborhood associations, local businesses, and local and state governments, we are creating long-term solutions while being responsive to consumers’ immediate needs.”

Today’s action comes after Monday’s order by Commissioner Lara to insurance companies to preserve residential insurance coverage for more than 325,000 policyholders who have been affected by devastating Northern California wildfires across 22 counties. His mandatory Order – as seen in Bulletin 2021-06 – follows the Governor’s seven emergency declarations this summer and gives protection from insurance company-initiated non-renewals for one year for residential property insurance policies within the perimeter or adjoining ZIP code of a declared wildfire disaster regardless of whether they suffered a loss, including the Dixie, Caldor, River, Tamarack, Antelope, McFarland, Monument, Fly, and Cache fires.

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Media Notes:

  • Commissioner Lara’s order to the FAIR Plan
  • In November 2019, Commissioner Lara ordered the FAIR Plan to offer a comprehensive policy more akin to a traditional homeowners policy, in addition to its current fire-only coverage, so a homeowner who was non-renewed or could not obtain similar coverage from a standard insurance company could get this comprehensive coverage from the FAIR Plan. Without the Commissioner’s order, homeowners are forced to purchase an expensive and inconvenient “difference in conditions” coverage on top of their FAIR Plan “dwelling fire” policy in order to get insurance coverage similar to the amount of coverage they previously had through the voluntary market.
  • Los Angeles Superior Court Judge Mary Strobel issued her ruling on July 12, 2021, which the Department received on July 19, 2021, substantially upholding the Commissioner’s authority to order broader coverage options to consumers. She directed the Commissioner to remove “some liability coverages that have no relationship, nexus, or connection to the insured property” and to resubmit his order to the FAIR Plan for immediate implementation.