Special Report: California’s FAIR Plan Under Attack & the APCIA Goes on the Offensive

Lawsuits involving California’s FAIR Plan have been rolled out. They number three and have been deemed frivolous by many in the industry and have invoked an outright attack by the American Property Casualty Insurance Association (APCIA).

California’s Consumer Watchdog has filed a lawsuit against California Insurance Commissioner Ricardo Lara and the state’s insurer of last resort, the FAIR Plan. The suit is over the $1 billion Lara ordered insurers to pump into the FAIR Plan to help pay the costs the plan incurred because of the Los Angeles wildfires.

Under the new regulation put into place by Lara, insurers can get half of the cash they’re ordered to put into the plan back in the shape of fees to policyholders. In this case, it’s $500 million.

California Watchdog attorney, Ryan Mellino said Lara overstepped his authority. He said increases of that nature need to come through the California Legislature.

“We look forward to defending the rights and pocketbooks of Californians and stopping this socialization of FAIR Plan losses at the public’s expense, while the FAIR Plan’s profits will wholly remain with the insurance companies,” he said.

Gabriel Sanchez of the California Department of Insurance disagrees and said this suit, and other such efforts, will just make the homeowners insurance crisis in California worse.

“This hurts homeowners, small business and nonprofits who need access to insurance options, while doing nothing to address the insurance crisis,” Sanchez said. "It also serves to undermine our efforts to restore competition to all areas of our state, so people can get off the FAIR Plan and back to the regular market.”

Denni Ritter of the APCIA agrees and said the suit is a reckless, self-serving stunt. Ritter said so far, insurers have put over $500 million into the FAIR Plan to help out with LA wildfire costs.

“Blocking recovery of the additional costs insurers have paid to prop up the Fair Plan would jeopardize the last-resort coverage option for homeowners — and push our fragile insurance market closer to total collapse,” Ritter said. “It is critical that the costs be spread equitably across a broader pool of insured customers to help restore California’s insurance market and protect access to coverage for all consumers.”

She said the agreement to allow insurance companies to pass some of their FAIR Plan costs onto consumers is part of Lara’s insurance sustainability plan he unveiled last year.

“Insurers are committed to helping Californians recover and rebuild from the devastating Southern California wildfires,” Ritter said. “Insurers have already paid tens of billions in claims and contributed more than $500 million to support the FAIR Plan’s solvency — even though they do not collect premiums from FAIR Plan policyholders.”

There’s more. Two lawsuits more and more scathing criticism from the APCIA.

Both are filed by Larson LLP and Shernoff Bidart Echeveirra LLP. The first is an anti-trust suit accusing State Farm, Farmers and other insurers of forcing homeowners onto the FAIR Plan. It says the insurers colluded to cancel policies in the Pacific Palisades, Malibu and Altadena areas so homeowners would be forced to go to the FAIR Plan for insurance.

A statement from the law firms said the plaintiffs are victims of the LA wildfires and that push left the homeowners with no options.

“At the time of the January wildfires, the [FAIR] plan had significantly inadequate reserves to cover a catastrophic wildfire — funding levels that were determined by the insurance companies as the only voting members of the FAIR Plan’s Governing Committee,” the statement said. “The California Department of Insurance agreed in 2024 to allow insurers to pass 50% or more of any additional funds required for coverage to customers in unaffected areas in the form of higher premiums, further incentivizing the insurers’ push to force homeowners onto the FAIR Plan.”

The homeowners in the suit say though their FAIR Plan policies were more expensive, they were left underinsured. The gap between the policies received from the FAIR Plan and the actual damages amounted to millions of dollars that would have been covered by their previous policies.

The second lawsuit connects to that thought. It also says insureds were forced to pay very high rates for lesser coverage.

Larson LLP says the homeowners in the two suits are seeking three times the damages and they want an injunction to keep insurers from engaging in “further anti-competitive behavior.”

APCIA chief legal officer, Stef Zielezienski immediately slammed the two suits and indicated the insurers in his organization follow the letter of the law. He said the APCIA has been “sounding alarm bells” about the deterioration of the California property insurance market for years.

Those calls have been largely ignored and now the industry is faced with frivolous lawsuits.

“APCIA has, in California and throughout the states, consistently opposed the creation and expansion of state property residual plans such as the California FAIR Plan. Insurers are ultimately on the hook for the liabilities of such plans,” he said and noted his efforts to engage government bodies like the California Department of Insurance on this issue has been done with the legal protections of the Noerr-Pennington doctrine.

“APCIA fully complies with all applicable antitrust laws and has legal counsel monitoring every member call and meeting for that purpose,” he said. “These suits defy logic, advance meritless claims, and we are going to focus on solving the challenges in the insurance market in California.”

Source link: Insurance Business America — https://bit.ly/4joOta5

Source link: PropertyCasualty360.com — https://bit.ly/43YSjBU

Source link: Insurance Business America — https://bit.ly/4cIXat3