Homeowners who sustained damage in the Palisades and Eaton wildfires have filed a lawsuit against California’s property insurer of last resort, the FAIR Plan, alleging that their smoke damage and fire claims were inappropriately denied or underpaid.
Ten Palisades and Altadena residents filed the legal complaint April 10 in Los Angeles County Superior Court, alleging that the privately run Fair Access to Insurance Requirements Plan has acted in bad faith and breached policyholders’ contracts. The lawsuit was filed by Edelson PC and Kerley Schaffer LLP, which argue that the FAIR Plan has been denying homeowners’ wildfire claims unless there were “permanent physical changes” to their properties.
The California FAIR Plan “unlawfully failed to investigate and timely pay wildfire losses suffered by its customers, leaving thousands of families stranded and unable to access the coverage they paid for and desperately needed to repair their homes and protect their health,” the complaint states.
The FAIR Plan’s actions fly in the face of the state Department of Insurance’s (DOI) notifications to the insurer warning that its practice of rejecting wildfire-caused smoke damage violated the law, according to the lawsuit.
FAIR Plan “failed to properly investigate, failed to pay and delayed payment of their claims in bad faith, and with malice, fraud and oppression,” the complaint says.
As of Feb. 19, the nonprofit insurer received 3,621 claims for damage as a result of the Palisades Fire and about 1,369 claims for property damage stemming from the Eaton Fire, with about 45% of the wildfire claims representing total losses, according to FAIR Plan statistics.
"The victims of the Los Angeles wildfires have already endured the trauma of fleeing their homes,” Ali Moghaddas, partner at Edelson PC, said in a statement emailed to the Southern California Record. “Now, they’re taking another hit from their insurance provider – the supposed provider of last resort. We’re looking forward to this fight.”
With the FAIR Plan’s financial exposure shooting up in the past 10 years, the insurer sought to protect its corporate members’ financial stability through coverage restrictions that resulted in denials or underpayments to policyholders’ claims.
“... For many families, the initial relief of seeing their houses still standing soon gave way to another nightmare: Wildfire smoke had transformed their homes into toxic traps, with each room and surface caked with invisible, hazardous chemical residue,” the lawsuit states. “This contamination – which often includes lead, arsenic and other chemicals – rendered their homes unsafe and unlivable without substantial repairs to damaged building components, and dangerous and expensive remediation.”
As a result of the insurer’s restrictive policies, FAIR Plan policyholders whose homes and belongings were damaged by wildfire smoke and other fire-related threats were directed to clean up their homes themselves with mops, brooms and sponges, according to the complaint.
The plaintiffs are seeking consequential damages, including compensation for emotional distress; exemplary damages; a tripling of any jury awards for each plaintiff; pre- and post-judgment interests; and costs of the lawsuit plus investigative costs.
The FAIR Plan’s 2017 policy restrictions also improperly limited policyholder claims during the 2018 Camp Fire and the 2020 North Complex Fire, according to the lawsuit.
The FAIR Plan is funded and operated by private insurers licensed to operate in California. Those insurers underwrite the FAIR Plan and have control over its governance and policies, the plaintiffs say in the lawsuit.