In a landmark decision with significant implications for homeowners in California, a judge has declared the state’s streamlined home insurance program’s management of smoke damage claims to be illegal. This ruling comes amid a rising incidence of wildfires, with insurance companies grappling with the consequences even when flames don’t directly consume properties.
The case, presided over by Los Angeles Superior Court Judge Stuart M. Rice, is a triumph for homeowners in a state where wildfire risk has surged, contributing to a growing home insurance crisis. The ruling specifically pertains to a lawsuit filed by Jay Aliff in 2021. Aliff’s home, situated near Lake Tahoe, sustained damage during the November 2020 Mountain View fire. His lawsuit targeted the California Fair Access to Insurance Requirements Plan, more commonly known as the FAIR Plan, which serves as the insurance of last resort for those dropped by private insurers.
Initially intended as a temporary safeguard with high premiums and limited coverage, the FAIR Plan has evolved into a default option for many Californians. According to state data, the number of residential policies climbed to 550,000 by March, more than doubling since 2020.
Urban wildfires often lead to the combustion of building materials, vehicles, and appliances at high temperatures, resulting in the presence of harmful substances, including lead and polycyclic aromatic hydrocarbons (PAHs) like benzene, all associated with negative health effects. Despite this, insurance agencies have yet to standardize testing for these hazardous materials.
For years, the FAIR Plan faced criticism for denying smoke damage claims unless there was indisputable proof of permanent physical alteration, contrary to the long-standing determination by the California Department of Insurance that such a threshold is illegal.
Aliff argued that the FAIR Plan initially offered him only a partial payment to cover remediation costs, citing a denial letter that suggested the fire debris could simply be cleaned, thereby not constituting a “direct physical loss” to his home. “The contaminants released, such as lead and cyanide, are not something one can easily clean with household products,” stated Aliff’s attorney, Dylan Schaffer.
Schaffer, also representing several other plaintiffs in similar lawsuits against the FAIR Plan revolving around smoke damage, declared this ruling as transformative for California’s insurance laws. “This marks a pivotal moment, reshaping the boundaries of insurance liabilities and responsibilities,” he remarked.
The court ruled against the FAIR Plan’s description of smoke damage coverage as a “direct physical loss,” identifying this definition as unlawful and hidden from the reasonable expectation of an insured individual. Additionally, the judge criticized the requirement that smoke damage be noticeable without specialized detection means.
FAIR Plan spokeswoman Hilary McLean disclosed that the organization is already working with state insurance regulators to amend its policy language and has revoked the contentious sight and smell evaluation. “Our endeavor remains to ensure fair and reasonable coverage for wildfire-related damages, safeguarding the financial stability of the FAIR Plan for our policyholders,” McLean emphasized in her statement.