California’s troubled fire insurance market has pushed increasing numbers of homeowners onto the state’s high-risk FAIR Plan. In San Diego alone, FAIR Plan coverage quadrupled over the last few years.
A pair of lawsuits filed against major insurers last week claim that was by design.
Two lawsuits allege that the top 25 insurers conspired to eliminate standard insurance policies, in an effort to boost profits and shed risk. That left homeowners to seek coverage under the state’s last-resort insurance plan, which offers lower coverage at higher premiums.
“By colluding together to cancel existing policies and refusing to write new ones, the insurers were able to force property owners onto the FAIR Plan,” the law firms who filed the suits said in a statement.
One lawsuit represents Los Angeles homeowners who suffered damages from the Palisades and Eaton Fires in January. The other makes claims on behalf of hundreds of thousands of California homeowners “who were forced to pay exorbitant rates for inferior coverage after the insurers’ misconduct forced them to obtain limited coverage from the FAIR Plan,” the firm stated.
Homeowners were cornered, with no choice but to accept less coverage while “defendants used the plan to raise, fix, maintain and stabilize premium prices for those thousands of consumers,” the complaint stated.
The American Property Casualty Insurance Association, a trade association representing insurers, denied any wrongdoing by its members. Its chief legal officer, Stef Zielezienski, argued that the problem stems from “deteriorating conditions in the California property insurance market” and said the “suits defy logic (and) advance meritless claims.”
How we got here: California established the FAIR Plan in 1968 as an insurer of last resort for properties in high fire risk areas that private insurers won’t cover. The plan offers homeowners a temporary safety net until they can get traditional insurance coverage, with the goal of reducing the number of people who depend on it.
Instead, Fair Plan coverage has increased, as insurance companies have withdrawn from California after a series of catastrophic wildfires. Statewide, its policies doubled between 2020 and 2024. In San Diego County, they quadrupled during that time.
The lawsuits claim insurance companies took advantage of the crumbling insurance market, using California’s high-risk pool to charge higher rates while insulating themselves from liability.
The companies “turned the stopgap protective purpose of the FAIR Plan on its head,” the lawsuits stated. “It did so by subverting the FAIR Plan into an instrument to collectively enhance Defendants’ profitability while shifting vast amounts of fire liability exposure back onto consumers.”
To help pay billions of dollars in claims from the L.A. fires, the FAIR Plan will impose a special charge of $1 billion on insurance companies, who will in turn pass $500 million onto homeowners, including those with traditional plans. Most policyholders in California will see an extra charge on their insurance bills.
“As a coup de grace, the FAIR Plan has already announced that half of the losses incurred as a result of the wildfires will be charged back to the consumer marketplace,” the lawsuit stated.
Could San Diego homeowners be affected? I contacted the law firms who sued the insurance companies to find out what these cases mean for San Diego homeowners on the high-risk state plan, but they didn’t respond.
However, they argued in court filings that the alleged conspiracy could affect homeowners beyond those who lost property in the L.A. Fires.
“A more hidden—but just as collectively injurious—aspect of Defendants’ scheme
is the billions of dollars that have been siphoned from the pockets of homeowners who were
spared from the recent wildfires, but are still paying inflated rates for deficient coverage,” the lawsuit on behalf of all FAIR Plan customers stated.
San Diego County’s reliance on FAIR Plan policies has soared, as policies roughly quadrupled between 2020 and 2024, from 9,670 to 37,375. That’s the third highest number in the state, after Los Angeles and San Bernardino Counties.
A year ago, I reported on State Farm’s decision not to renew thousands of policies in California, including 2,000 in San Diego. The affluent community of Rancho Santa Fe was one of the hardest hit, along with rural areas in Alpine, Chula Vista, Jamul, Lakeside and El Cajon. Some of those homeowners likely turned to the state high-risk plan when their policies expired.
Whatever their outcome, the lawsuits highlight the problem that the state’s last-resort insurance plan has become the only option for hundreds of thousands of California homeowners.
Also on the Fire Insurance Front
The nonprofit Consumer Watchdog sued the California Department of Insurance and Commissioner Ricardo Lara last week, challenging the $500 million in surcharges that California homeowners will have to pay to help cover liability from the L.A. fires.
Consumer Watchdog denounced the assessment as a “bailout” for insurance companies. It says the surcharges were announced without the opportunity for public comment and claims FAIR Plan statutes don’t allow companies to shift costs to consumers.
A proposal to stabilize the FAIR Plan is moving forward. Assemblymember David Alvarez’ bill would authorize the FAIR Plan to request the California Infrastructure and Economic Development bank to issue bonds in cases where catastrophic events strain the plan’s ability to pay claims. It passed the Assembly floor earlier this month.
DUI Case Becomes Rallying Cry for Immigration Bill
State Senate Minority Leader Brian Jones said the early release of a man who killed two Orange County teenagers in a DUI crash makes the case for his proposal to scale back California’s sanctuary law.
Oscar Eduardo Ortega-Anguiano, who pleaded guilty to two counts of gross vehicular manslaughter while intoxicated in 2021, could be freed after serving three years of a 10-year sentence. He is also accused of illegally entering the country after being deported twice.
“California’s sanctuary state policies and soft-on-crime approach are to blame,” Jones said.
In February Jones introduced a bill to prevent cities and counties from restricting local-federal cooperation on immigration matters beyond what the current sanctuary law allows, and require law enforcement officials to cooperate with federal officials on immigration cases involving serious crimes.
Bill Essayli, a former Republican Assemblymember for Temecula who was appointed U.S. Attorney for the Central District of California earlier this month, vowed to prosecute Ortega-Anguiano. Gov. Gavin Newsom said he would coordinate with ICE.
California Makes #4 World Economy: California is now the fourth largest economy in the world, Newsom announced Wednesday. With a Gross Domestic Product of $4.1 trillion, it surpassed Japan and ranked behind only the United States, China, and Germany
The Sacramento Report runs every Friday. Do you have tips, ideas or questions? Send them to me at deborah@voiceofsandiego.org.
