On June 25, 2025, Los Angeles Superior Court Judge Stuart M. Rice issued a significant ruling stating that the California FAIR Plan’s handling of smoke damage claims is unlawful. The FAIR Plan is the state’s insurer of last resort, offering minimal coverage to homeowners unable to secure insurance through private carriers — a growing reality due to the escalating wildfire risk in California.
The Case
- Plaintiff: Jay Aliff
- Incident: Aliff’s Lake Tahoe home was damaged in the Mountain View fire of November 2020.
- Lawsuit filed: 2021
- Claim: The FAIR Plan offered only a partial payout, asserting the debris could be cleaned and therefore did not qualify as “direct physical loss.”
Key Issues and Court Findings
- The FAIR Plan denied or reduced smoke damage claims unless damage was visible or smelled by the unaided human eye or nose, disregarding laboratory testing and subjective experiences.
- The judge ruled this standard:
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Violated California insurance law, as it imposed undefined and unreasonable limits on expected coverage.
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Was not “conspicuous, plain and clear,” as required by law.
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Prevented policyholders from reasonably determining whether their losses were covered.
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The ruling emphasized that smoke contamination — often involving dangerous substances like lead, benzene, and cyanide — may not leave visible or olfactory traces but can still present serious health and property hazards.
Wider Implications
- The FAIR Plan, initially a temporary safety net, now covers 550,000 homes (double the number in 2020) as private insurers withdraw from high-risk markets.
- The decision could reshape how smoke damage is evaluated and covered in California, potentially influencing broader insurance standards amidst increasing wildfire activity.
- Plaintiff attorney Dylan Schaffer considers the judge’s opinion to be “the most important decision in California insurance law in decades.” Schaffer is also litigating multiple similar cases against the FAIR Plan.
FAIR Plan’s Response
- Spokeswoman Hilary McLean stated that the FAIR Plan is working with the California Department of Insurance to revise its language.
- The Plan has already eliminated the “sight and smell” test and aims to balance fair coverage with the program’s financial sustainability.
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