California FAIR Plan to Appeal of Court’s Ruling on Expanded Coverage

October 14, 2021

The California FAIR Plan Association (FAIR Plan) says it will appeal a ruling by the Los Angeles Superior Court the association believes will lead to unnecessary rate increases for all FAIR Plan policyholders and unnecessarily expand the role of the FAIR Plan in the voluntary insurance marketplace.

The FAIR Plan also plans to request a stay of the California insurance commissioner’s order issued Sept. 24, which directs the 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 Fair Plan, with about 200,000 policyholders, serves as the state’s property insurer of last resort; all admitted property insurance companies in the state are members of the association.

In July 2021, the Los Angeles Superior Court ruled that the California Department of Insurance (CDI) exceeded its legal authority in 2019 when it ordered the FAIR Plan to provide comprehensive homeowners insurance, known as an HO-3 policy. That ruling left the door open for the CDI to order the FAIR Plan to provide other new coverages, however.

Subsequently, CDI issued Order No. 2021-2 requiring the FAIR Plan to provide a quasi-HO-3 policy that would provide less coverage than comprehensive homeowners insurance yet would still force the FAIR Plan to offer new types of coverage.

The FAIR Plan is appealing the portion of the ruling holding that the CDI has the authority to order the FAIR Plan to provide new coverages that are already available to consumers from other insurance providers in the voluntary market.

In a media release, Anneliese Jivan, president of the California FAIR Plan stated: “Ultimately, the California Department of Insurance’s order would place more financial burden on existing FAIR Plan customers – whether they can afford it or not. The FAIR Plan was created to provide California property owners with the basic fire insurance coverage they need, when they need it most. The FAIR Plan was never meant to compete with traditional insurance carriers that already provide these coverage options. We are appealing the ruling and contesting the latest CDI order to protect consumers from unnecessary rate increases.”

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California law requires the FAIR Plan to provide basic property insurance for property owners who cannot get insurance through the voluntary market, serve as a stabilizing force in the insurance marketplace and maintain actuarially sound rates. The FAIR Plan said its unique role as a last resort for fire insurance is analogous to the California Earthquake Authority, which exists to meet consumers’ need for a specific line of insurance when the voluntary market cannot or will not provide it.

According to the association, requiring the FAIR Plan to expand into coverages that are readily available would put the FAIR Plan in direct competition with the voluntary market, which is illegal. In addition, forcing the FAIR Plan to offer new coverages would lead to higher rates for existing FAIR Plan policyholders and a significantly more expensive product than what’s available from traditional insurers.

The CDI’s Sept. 24 order attempting to compel the FAIR Plan to offer a quasi-HO-3 policy would still result in customers needing additional coverage to have the equivalent of a comprehensive homeowners policy, or the equivalent of a FAIR Plan policy plus a Difference in Conditions policy, according to the association. Specifically, the quasi-HO-3 policy ordered by the CDI would leave policyholders without certain types of important liability coverage found in a comprehensive policy, necessitating a second policy outside the FAIR Plan.

Coverage options referred to as Difference in Conditions policies are readily available within the voluntary market, as indicated on the CDI’s website. A FAIR Plan policy accompanied by a Difference in Conditions policy offers the equivalent of an HO-3 policy. Any homeowner can work with their insurance broker to secure these coverages.

FAIR Plan said it does not have the staffing infrastructure or expertise to offer lines of insurance outside basic property coverage. If forced to shift its focus to build new lines of insurance, the FAIR Plan would have to divert resources from its core services, thus slowing aid to victims of devastating fires across the state, the association said.

Source: California FAIR Plan