California Court Upholds Insurance Commissioner’s Order to Expand FAIR Plan Coverage

In an effort to better protect homeowners, insurance coverage has been expanded and limits increased under the California FAIR Plan – the state’s insurer of “last resort.” Such was the mandate as set forth in California Insurance Commissioner Ricardo Lara’s 2019 Order No. 2019-2, which has just been upheld by the Superior Court of California for the County of Los Angeles.

A Bit of Background

The Commissioner’s 2019 Order broadened coverage provided by the FAIR Plan to offer a comprehensive homeowners policy, in addition to the FAIR Plan’s initial dwelling-fire only coverage. Traditional homeowner coverage features—for example, coverage for water damage and personal liability—were added both to assist insureds throughout California unable to find adequate fire and homeowners’ insurance, and to save consumers from having to purchase second companion policies to cover other hazards not covered by their primary homeowners’ policies.

More specifically, Commissioner Lara’s 2019 Order:

  1. Increased the combined dwelling coverage limit under the FAIR plan from $1.5 million to $3 million;
  2. Ordered the FAIR Plan to offer consumers a monthly payment plan and the flexibility to pay by credit card or electronic funds transfer, without fees; and
  3. Required the FAIR Plan to offer a comprehensive homeowners’ policy (e., HO-3 coverage).

Litigation Ensued

These modifications were to become effective April 1, 2020, but litigation was filed in the interim. The California FAIR Plan Association disputed the 2019 Order, arguing the Commissioner did not have the statutory authority to issue it. This resulted in the filing of a petition for a writ of ordinary mandate in the L.A. Superior Court directing Commissioner Lara to vacate the 2019 Order on the basis that it was arbitrary, capricious, or lacking in evidentiary support.

Last week, the Commissioner’s office reported that Judge Mary Strobel substantially upheld the Commissioner’s authority to order broader coverage to consumers under the FAIR Plan. That being said, the ruling was not a total win for the California Department of Insurance. The court directed Commissioner Lara to remove certain liability coverages “that have no relationship, nexus, or connection to the insured property” and resubmit the 2019 Order.

Further, Judge Strobel found that the Commissioner could not require the FAIR Plan to offer payment plans “with no additional fees,” but otherwise held that he could order the FAIR Plan to provide certain payment plans or options, such as electronic funds transfer.

The Takeaway

While Commissioner Lara’s 2019 Order requiring the FAIR Plan to offer comprehensive HO-3 coverage was not outside his statutory authority, the expanding coverage must be connected—or in some way related—to the insured property. This was not the case for the HO-3 policy alluded to in the original 2019 Order, which contained certain coverages that went beyond this limitation.

More information on the California FAIR Plan can be found on its website. Of course, should you have any questions about the 2019 Order or any other insurance-related queries, do not hesitate to contact the insurance and regulatory specialists at Michelman & Robinson, LLP.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.