It’s Only FAIR

It’s Only FAIR

Californians have always been threatened by fire, flood, and mudslide.  The last decade has produced some of the most virile wildfires that the State has ever had.  These wildfires have cost consumers millions of dollars, and over a billion dollar loss in California from all sources.  The fires have caused the loss of  homes, farms, vineyards, and business.  To add insult to injury, many homeowners and business owners then receive a letter from their insurance company stating they their insurance would not be renewed on the subject properties.  What then?

Traditionally, if your insurance agent could not find an insurance company to insure your home, you were simply uninsured for any loss from any purpose.  As property ownership was growing, it became clear that insurance benefits were needed to help all homeowners protect their investment in their home.  Natural events such as flooding and fires were causing an unplanned increase for risk in the highest numbers.  Also, as some areas were prone to flooding or to wildfire, the risk of loss in those areas made insurance companies unwilling to risk insuring those homes.  Legislature took on the issue of how to help those who found themselves uninsured and their insurance canceled due to these natural events.

In the same year that the National Flood Insurance Act of 1968, creating FEMA, became law, California Insurance Code section 10091(a) et. Seq, was enacted, creating the California FAIR Plan Association

The goal of this new law was to extend insurance benefits to otherwise ineligible homeowners.  These would be homeowners who were being denied insurance or having their insurance coverage canceled after a claim.  Insurance carriers could continue to deny insurance coverage to homeowners in rural or fire prone areas, but under the new law, all licensed insurance carriers in the State would become a member of the FAIR Plan Association.  The FAIR Plan Association was to provide basic property insurance to those denied coverage by the insurance carriers individually.  So, if a homeowner found that after applying to all of the insurance companies operating in their area of the state, that they were denied, they could apply to FAIR to secure fire insurance for their home.

FAIR is not a state agency.  It is a condition of being allowed to sell insurance and operate in the State.  It is an association to spread the risk of loss among all of the insurance companies operating in the state.  All of the insurance companies contribute to the plan and subsequently share in the profit, loss and expenses of the plan.  It is a joint, reinsurance association.

The bottom line was that this program would provide a safety net; it was homeowner’s last chance, to insure their property from at least fire damage.

If homeowners wanted any other kind of insurance, like flood, wind, water, theft or liability, they would need to purchase individual policies.  Flood insurance could be purchased under the National Flood Insurance Act.  Earthquake insurance through other state programs, and then a policy for “Difference in Conditions” could be purchased to cover liability and some other perils like theft.

Over time the law has changed to include rural and urban properties, commercial properties and recently, in July of 2021, the law was extended to farms and vineyards.  The devastation caused by the Napa and Paradise Fires simply made insurance companies decline covering properties in that area leaving these businesses and farms without any insurance.  Senate Bill 11 has authorized the coverage of farm structures like barns, sheds, and dairy houses.  For the first time in 24 years, in October 2021, FAIR increased policy limits for payment of damages from covered events.

The courts have consistently held that the FAIR plan was needed and was to be interpreted to provide insurance and “to ensure homeowners who live in high risk or otherwise uninsurable areas have access to basic property insurance.”  Traditionally, the FAIR plan only provided for very basic fire insurance coverage.

If a homeowner wanted coverage for premises liability, worker’s compensation, water, wind, and theft damages, like more traditional insurance, they would have to purchase separate and usually very expensive policies.  This policy contributed to more people not having the insurance coverage they needed to protect their assets.  This policy was frequently challenged.

Several court cases such as Century National Insurance v. Garcia (2011) 51 Cal4th 564, St. Cyr v. California FAIR Plan (2014) 223 Cal App4 786, and California Fair Plan Assoc. v. Marlene Garnes, have challenged the necessity of having more standard coverage in the FAIR plan and to have the insurance applied as though it was a regular homeowners policy for non-high risk properties.  Thus far, the courts have supported an interpretation of the law which has been favorable to consumers.

In July 2019 and again in September 2021, the Insurance Commissioner ordered the FAIR plan to provide premises liability, water damage and theft insurance as well as increasing the maximum amount of insurance to $3 million per insured structure. This was promptly challenged in Los Angeles Superior Court.  On February 10, 2022, the Court ruled that FAIR cannot deny greater coverage to participants in the plan, and that Insurance Commissioner Lara’s order for FAIR to offer more comprehensive insurance than fire only to participants was valid. An order to comply was issued to the insurance carriers.  It is anticipated that the new policies should be available by summer.

The State Insurance Commissioner also initiated a cooperative plan between the state and various entities that would permit homeowners in high risk areas to pay lower premiums if they take action to make their homes less at risk. In February 2022, Insurance Commissioner Lara introduced the “Safer from Wildfires” initiatives.  These initiatives include what steps a homeowner may take to make their home more resistant to natural disasters, and would qualify them for a credit in their insurance premium.  A complete overview of the plan and the mitigation steps being urged to be taken by homeowners can be downloaded at the California Department of Insurance website.

The Insurance Commissioner is reviewing and evaluating the success of this insurance program.  If you live in one of the canyons or high fire risk area, know that you can always get some insurance.  Your regular insurance agent should have the information for you to apply to FAIR for coverage.  If not, the California Department of insurance website has instructions and information about the FAIR program and how to apply.

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