Despite recent legal and regulatory challenges, the California FAIR Plan Association is continuing to deny smoke damage claims from the January wildfires, reports the Los Angeles Times. A review of denial letters shows that policyholders seeking professional remediation or replacement of damaged property are being turned away, even when tests have confirmed the presence of toxic substances in homes.
Court Ruling and Regulatory Action
In June, Los Angeles County Superior Court Judge Stuart Rice ruled that the FAIR Plan’s requirement for policyholders to prove “permanent physical damage” violated state law. The ruling determined that this standard provided less coverage than California’s Standard Form Fire Insurance Policy requires.
Following the decision, the state Department of Insurance took action on July 31, threatening the FAIR Plan with a cease-and-desist order. Regulators accused the insurer of failing to investigate claims fairly and denying legitimate claims without a reasonable basis. The plan has denied wrongdoing and is seeking an administrative hearing.
Changes in Policy Language
After the court ruling, the FAIR Plan revised its claim language. Instead of requiring proof of “permanent physical changes,” denial letters now state that policyholders must demonstrate a “distinct, demonstrable and physical alteration” to their property. The plan cited a 2024 California Supreme Court decision involving a COVID-related business closure as the legal basis for the change.
A spokesperson for the FAIR Plan said the organization is updating communications to reflect the correct language while maintaining financial stability for all policyholders.
Ongoing Claim Denials
Correspondence reviewed from July and August shows that claims for smoke damage continue to be rejected. In one case, an industrial hygienist reported “toxic” levels of carcinogens and particulates in a Pacific Palisades home and recommended the removal of drywall, plaster, and other materials. However, an expert hired by the plan concluded only cleaning was needed, and the claim was denied.
The FAIR Plan did offer to reinspect homes if cleaning efforts were unsuccessful in removing contaminants.
Government Response
Governor Gavin Newsom urged the FAIR Plan to “expeditiously and fairly” process smoke damage claims, citing hundreds of complaints from policyholders. Insurance Commissioner Ricardo Lara previously issued a bulletin clarifying that the Supreme Court decision does not mean smoke damage is never covered under California law.
Impact of the January Fires
The January wildfires were the largest catastrophe in decades for the FAIR Plan, resulting in an estimated $4 billion in losses. The plan has assessed $1 billion to its member carriers, which include State Farm, Farmers, and Mercury.
Enrollment in wildfire-prone areas such as the Eaton and Palisades zones nearly doubled between 2020 and 2024, rising to 28,440 policyholders as private insurers scaled back coverage in the state.
Attorney Dylan Schaffer, who represented the plaintiff in the June court case, estimates that more than 2,500 smoke damage claims may have been filed. The FAIR Plan has not disclosed how many such claims it has received or how many have been paid or denied.
Policyholder Experiences
Some homeowners have taken on significant expenses after claim denials. Altadena resident Maral Donoyan reported paying close to $200,000 for remediation after her smoke damage claim was denied, despite partial fire damage to her garage. She and her husband relied on a Small Business Administration loan to move back into their home.
Other residents and advocates continue to challenge the FAIR Plan’s handling of smoke damage claims, with lawsuits ongoing.
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