A Los Angeles consumer group is suing Insurance Commissioner Ricardo Lara over his decision to allow California insurers to raise charges to policyholders to cover California FAIR Plan assessments in the wake of January’s wildfires.
Consumer Watchdog sued Lara and the state Department of Insurance on April 14 in Los Angeles County Superior Court. The group argues that the action taken by the commissioner last summer will allow insurers to place homeowners on the hook for $500 million out of a total of $1 billion in FAIR Plan assessments authorized in February after the Eaton and Palisades fires.
The FAIR plan is a private association managed by insurers operating in the state. The plan, which offers basic homeowners insurance and is considered California’s insurer of last resort, covers more than 574,000 homes and businesses, according to the lawsuit.
Lara violated the state’s Insurance Code when he issued bulletins authorizing the cost shift of FAIR Plan assessments from insurers to policyholders, the Consumer Watchdog complaint says. The commissioner mischaracterized his administrative decision as ”democratizing rates,” according to the lawsuit.
“... It is not ‘democratizing the rates’ to make policyholders pay for insurers’ participation in the FAIR Plan while ignoring that policyholders did not participate in the decades of profits that insurers enjoyed from the FAIR Plan (and have no right to any future profits),” the complaint states. “For insurers, that is ‘heads, you win; tails, policyholders lose.’ The bulletins effectively require every California policyholder to reinsure their own insurer.”
The Department of Insurance indicated that it does not comment on the specifics of pending litigation, but Lara’s press secretary, Gabriel Sanchez, said the lawsuit fails to recognize the property insurance challenges facing the state.
“This negatively impacts homeowners, small businesses and nonprofits that require access to genuine insurance options, while failing to address the ongoing insurance crisis,” Sanchez said in an email to the Southern California Record. “Additionally, it undermines our efforts to enhance competitiveness across the market, which would allow people to transition from the costly and limited FAIR Plan back to the standard insurance market.”
Consumer Watchdog’s challenge to Lara’s administrative decision alleges that the pass-through policy on FAIR Plan assessments was done without giving the public a chance to weigh in – which runs counter to the California Administrative Procedure Act. In addition, the statutes governing the FAIR Plan do not offer provisions to shift losses onto policyholders’ bills, the lawsuit says.
The plaintiff is asking the court to stop the enforcement of Lara’s bulletins, a declaration that the bulletins are invalid and the return of “unlawfully collected assessment costs” to policyholders.
The commissioner’s decision to allow the cost shift also does not address the problem of private insurers not renewing homeowner policies, according to Consumer Watchdog. Nor does it encourage them to expand their customer base in California, the advocacy group said.
“... Instead, the bulletins incentivize insurers to continue to transfer risks (and associated losses) to the FAIR Plan,” the lawsuit says.
Consumer Watchdog staff attorney Ryan Mellino said he looks forward to defending Californians’ pocketbooks and halting the “socialization of FAIR Plan losses.”
“Homeowners and renters across the state will be charged more, and the FAIR Plan won’t be depopulated,” Mellino said in a prepared statement. “The real beneficiaries of this decision are the insurance companies that make up the FAIR Plan.”