California FAIR Plan Association Issues Statement on Recent Court Ruling Setting Aside California Department of Insurance Commissioner’s Order

The California FAIR Plan Association (FAIR Plan) issued the following statement regarding a recent decision by the Los Angeles Superior Court involving orders issued in 2019 by California Insurance Commissioner Ricardo Lara that the FAIR Plan challenged. Among other things, the 2019 orders directed the California FAIR Plan Association to (1) issue an HO-3 policy and (2) to accept monthly credit card and electronic transfer payments without assessing the cost of processing these payments against those using the payment methods. These aspects of the order were stayed by the court in early 2020 while the case was under review.

The Los Angeles Superior Court made clear with its recent decision that the California Department of Insurance cannot compel the FAIR Plan to issue an HO-3 insurance policy. The ruling stated that the Court “… will issue a writ directing [the Commissioner] to set aside that portion of the Orders requiring [the FAIR Plan] to offer a comprehensive HO-3 policy.”

The FAIR Plan had challenged this aspect of the Commissioner’s order because, if allowed to stand, it would have led to unnecessarily increased rates and disruption in the voluntary insurance market. Additional coverages typically found in a homeowners policy are readily available to FAIR Plan  customers in the form of a Difference in Conditions (DIC) policy. Consumers can access these policies by working with an insurance broker and via the California Department of Insurance website. The FAIR Plan also hosts a clearinghouse program that allows insurance companies in the voluntary market to offer comprehensive homeowners’ policies to current FAIR Plan policyholders.

The Los Angeles Superior Court’s decision also made clear that the California Department of Insurance cannot require the FAIR Plan to offer new payment options without permitting the FAIR Plan to pass along the cost to those who use these payment options. The ruling stated, “The court will issue a writ directing [the Commissioner] to set aside that part of the Orders requiring [the FAIR Plan] to offer applicants or policyholders the option to pay their insurance premiums in monthly installments, with credit card or with electronic funds transfer with no additional fees.”

The FAIR Plan had challenged this portion of the Commissioner’s Order because it would have been required to increase rates for all FAIR Plan policyholders to cover the increased costs of these expanded payment options. Furthermore, passing along the cost of expanded payment options to those who use those options is a standard business practice commonly used in the private sector and by most public agencies.

“The Los Angeles Superior Court made clear that Commissioner Lara does not have the authority to require the FAIR Plan to offer a comprehensive HO-3 policy,” said Spencer Kook of Hinshaw & Culbertson, LLP, lead attorney representing the California FAIR Plan in the litigation. “Instead, the court clearly determined that Commissioner Lara must set aside those aspects of his 2019 orders requiring the FAIR Plan to offer an HO-3 policy as well as his attempt to prohibit the FAIR Plan from charging fees to cover the cost of payment options. This decision reaffirms the FAIR Plan’s critical role as a reliable safety net for Californians to protect against loss from fire, especially for those who live in the areas of the state at greatest risk of wildfire.”

The FAIR Plan is committed to strengthening consumer choices in the voluntary insurance market, while ensuring that all homeowners, including those who live in areas threatened by worsening wildfires, have access to basic property coverage and the peace of mind they deserve. The FAIR Plan shares the Insurance Commissioner’s commitment to consumers and his goal of addressing the insurance crisis as climate change increases wildfire risk for homeowners across our state. We look forward to collaborating with the policymakers, including the Commissioner, to identify ways to increase options for consumers within the voluntary insurance market.