Ruling bolsters effort to keep homes in fire-prone areas of California insured

With wildfires burning again and thousands of rural Californians losing their insurance coverage, state regulators Tuesday won a key legal battle that they believe could stabilize the fragile market for homeowners’ policies in fire-prone areas.

A judge in Los Angeles ruled that Insurance Commissioner Ricardo Lara has the right to force the California FAIR Plan — the so-called “insurer of last resort” — to offer more expansive coverage that resembles typical homeowners’ policies. The industry-run FAIR Plan had sued the commissioner, seeking to block his order.

The decision by Judge Mary Stroble in Los Angeles Superior Court comes as another difficult wildfire season grips the state.

Since 2015 tens of thousands of mostly rural Californians have lost their traditional homeowners’ coverage because of mushrooming wildfire risks. In almost every case, these homeowners are forced to buy a wildfire policy from the FAIR Plan. Then they have to go out and buy a separate policy from a traditional insurer covering the other hazards that are included in a regular homeowners’ policy: break-ins, liability and so on.

The effect is a huge increase in total cost — homeowners who’d been paying, say, $2,000 a year are now paying $6,000 in many instances.

In 2019, the last year for which statistics are available, about 75,000 Californians were forced onto the FAIR Plan after their traditional insurance carriers dropped them.

That same year, Lara directed the FAIR Plan to start offering comprehensive policies to those who’d lost their coverage. He also ordered the FAIR Plan to double the loss limits on its policies to $3 million — arguing that the old $1.5 million cap on losses was simply too low given the realities of the housing market in some areas of California.

The FAIR Plan wound up doubling its loss limits, as Lara ordered, but sued the commissioner over his insistence that the plan offer comprehensive coverage.

The plan, which was established by the Legislature but is bankrolled by the industry, not state taxpayers, accused Lara of making a “politically expedient maneuver” that ignored the cause of the insurance crisis — the state’s unwillingness to grant insurers high enough rates to cover the risk of selling insurance in wildfire zones.

Homeowners who live around Sierra foothills have had to resort to the FAIR plan at a much higher rate than their counterparts in the North Bay, though nonrenewals have been an issue for some local residents.

From 2018 to 2019, residential nonrenewals by insurance companies increased in California by 31% and FAIR Plan policies increased statewide by 36%, according to the state Department of Insurance.

In Sonoma County, there were 666 homeowner policies in the FAIR plan in 2019 with 433 of those being new policies. Still, that was a trickle compared about 150,000 such homeowner policies in the regular insurance marketplace within the county.

Regionally, Lake County relied more on the FAIR plan, given its rural nature and a history of recent wildfire activity that goes back to the 2015 Valley fire. It had 884 policies in the FAIR plan in 2019 — with 588 of those new policies — out of a total of more than 24,000 policies in the regular marketplace.

The nonrenewal issue has been tempered locally because of issued an order Lara issued last November prohibiting insurance companies from canceling property insurance policies for one year for people who live in or around the wildfire areas burned in 2020, which included the Glass and LNU Lightning Complex fires. That action affected 164,516 Sonoma County homeowners and another 48,438 homeowners in Napa County in the Hennessey and Glass fire areas.

“(The moratorium) made a huge difference,” said Amy Bach, executive director of United Policyholders, a consumer advocacy group based in San Francisco. “Talk to me after the moratorium expires in November and it might be a very different story.”

Officials with the FAIR Plan couldn’t be reached for comment Tuesday.

Meanwhile, as the FAIR Plan’s customer rolls grow, Lara has been negotiating with traditional insurance companies on a plan that would require them to sell coverage in fire-prone areas as long as those communities meet certain standards for safeguarding against wildfire risk. That includes “hardening” homes by retrofitting them with fire-resilient materials.

Staff Writer Bill Swindell contributed to this report.