FAIR Plan – Insurer of Last Resort Expands Basic Property Coverage

The California Fair Access to Insurance Requirements Plan Association or “FAIR Plan” was established by statute in 1968 to meet the needs of California homeowners unable to find insurance in the traditional marketplace. The FAIR Plan is a syndicated fire insurance pool comprised of all insurers licensed to conduct property/casualty business in California. All licensed property/casualty insurers that write basic property insurance required by Insurance Code sections 10091(a) and 10095(a) are members of the FAIR Plan. The FAIR Plan issues policies on behalf of its member companies. Each member company participates in the profits, losses, and expenses of the Plan in direct proportion to its market share of business written in the state.

Wildfires have caused insurmountable destruction in California over the last decade, causing many insurers to pull back from the California fire insurance marketplace. While many Californians have turned to the FAIR Plan for fire risk insurance, the FAIR Plan represents itself to the public as an “insurer of last resort” that provides only “basic property coverage.”  The FAIR Plan website states: “While we will support homeowners regardless of a property’s fire risk, unlike traditional insurers, our goal is attrition. For most homeowners, the FAIR Plan is a temporary safety net – here to support them until coverage offered by a traditional carrier becomes available.”  While attrition may be the goal, the reality for many California homeowners is that coverage from a traditional insurer has not become available, and likely will not, as fires continue to rage throughout the state year after year.  Insurers continue to notify homeowners who live in threatened areas that they will not be renewing their coverage.  With the marketplace having so few affordable options, many have no choice but to turn to the FAIR Plan.

Because the FAIR Plan was intended to provide only “basic property coverage” and not other types of coverage such as personal liability or theft, homeowners would have to buy a secondary insurance plan in order to have comprehensive coverage equivalent to a typical homeowners insurance policy.  In 2019, recognizing the economic disadvantage to Californians living in fire-threatened areas, the Insurance Commissioner ordered the FAIR Plan to begin covering more than just basic property coverage.  The order required, in part, that by June 1, 2020, FAIR Plan must offer for sale to California consumers a comprehensive homeowners property insurance policy.  The FAIR Plan sued, arguing the Insurance Commissioner’s order was illegal in that the Commissioner lacked statutory authority under the Basic Property Insurance Inspection and Placement Plan to require FAIR Plan to sell a comprehensive homeowners policy.  This month, the court held that that the Commissioner did have statutory authority to require FAIR Plan to offer insurance which includes liability coverage, but only if that coverage is related to the property. The full text of the order can be found HERE:

However, there are many instances where personal liability coverage, which pays on behalf of an insured for loss arising out of the insured’s legal liability to others, is afforded under a typical homeowners policy even though the liability does not necessarily relate to the property itself.  For example, suppose an insured accidentally caused bodily injury to another person in a location other than the insured premises. While a homeowners policy may provide coverage in such a scenario, the court found that the Commissioner could not order FAIR Plan to provide a homeowners policy that includes liability coverage with no connection to the insured property.  Thus, homeowners will likely still find a gap in FAIR Plan coverage, even with the coverage expansion per the recent court order.

If you live in a fire-threatened area or have recently received a letter of non-renewal from your homeowners insurance policy, you may need to evaluate whether a FAIR Plan policy is right for you.  You should inquire as to FAIR Plan’s coverage for personal liability, theft, flood, and earthquake offerings. Ask a licensed broker not only what a FAIR Plan policy covers, but what it does not cover, so that you can decide whether supplemental coverage is necessary for you and your home. If you or a loved one has been impacted by a recent natural disaster and have been unsuccessful in recovering insurance proceeds from your insurer, including FAIR Plan, our team of property/casualty lawyers is here to help. Please call Kantor & Kantor for a free consultation at 888-569-6013 or use our online contact form.

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