Judge’s ruling brings California FAIR Plan ‘one step closer’ to offering more than just fire insurance

A recent judicial ruling has brought California’s FAIR Plan, known as the ‘insurer of last resort,’ closer to expanding its coverage beyond fire insurance. The state, facing an ongoing insurance crisis marked by escalating costs and limited availability, is seeking modifications to the Fair Access to Insurance Requirements (FAIR) Plan. Initially designed as a safety net for homeowners, the FAIR Plan has become the primary option for many due to the affordability and availability challenges in the market.

As of September, the FAIR Plan had over 330,000 policies statewide, experiencing a 22% increase from 2022. However, its current offering is limited to basic fire insurance. Since 2019, California Insurance Commissioner Ricardo Lara has been pushing for an expansion of coverage under the FAIR Plan, including theft, on-property liability, water damage, snow damage, and more.

A lawsuit filed by the FAIR Plan Association sought to block the commissioner’s orders, arguing that it would compel the FAIR Plan to exceed its legal coverage obligations. The legal battle has spanned four years, with a judge ruling in Commissioner Lara’s favor in 2021. This week, a second judge sided with the state, affirming the commissioner’s authority to mandate coverage expansion.

If the FAIR Plan does not appeal the recent ruling, changes could be implemented as early as next year. The potential expansion could significantly impact the existing 330,000 policyholders and those increasingly turning to the FAIR Plan as their only option.

Currently, FAIR Plan policyholders receive only fire coverage, with the option to purchase additional coverage through a Difference in Conditions policy. Expanding coverage could eliminate the need for separate policies and provide more comprehensive protection.

Amidst the insurance crisis, homeowners face skyrocketing premiums or the unavailability of coverage, particularly in areas at high risk of wildfires. Commissioner Lara has initiated reforms to attract insurance companies back to the market by addressing risk and investing in mitigation. Despite the anticipated changes, Lara acknowledges the urgency of the current situation, encouraging those affected to contact the department for assistance in exploring alternative options.

In essence, the crisis, rooted in affordability and availability issues, initially affected wildfire-prone areas but has spread to suburban and urban regions. Homeowners, mandated to have insurance with a mortgage, are left with limited choices: pay increased premiums, opt for a basic policy, or raise deductibles. Experts emphasize the importance of having some coverage, even if it’s not comprehensive.