A consumer advocacy group sued last week to block insurance companies from charging California customers an additional fee to cover $500 million in costs associated with the deadly 2025 Los Angeles fires .
The move comes after California Insurance Commissioner Ricardo Lara ordered insurers doing business in the Golden State to kick-in $1 billion in relief to the state’s last-resort FAIR Plan to help with payouts for the Los Angeles blazes.
Driving the news: Under the order tendered by Lara, insurers can recover of the FAIR Plan reimbursement half from policyholders in the form of one-time fees, subject to further approval by Lara.
- Consumer Watchdog, the group behind the lawsuit, alleges that Insurance Commissioner Ricardo Lara exceeded his authority and violated state laws by allowing for cost shifting without following the proper procedures.
- The organization argued that such regulations, which have never been authorized in California, should have been vetted and approved by the Legislature or other oversight agencies before enforcement.
- The suit seeks to block Lara from approving any requests related to the cost shifting. According to Consumer Watchdog, there were at least three pending applications to implement a surcharge as of Tuesday.
What they’re saying: “We look forward to defending the rights and pocketbooks of Californians and stopping this socialization of FAIR Plan losses at the public’s expense, while the FAIR Plan’s profits will wholly remain with the insurance companies,” Consumer Watchdog staff attorney Ryan Mellino said in a statement.
- “This hurts homeowners, small businesses, and nonprofits who need access to insurance options, while doing nothing to address the insurance crisis,” said Gabriel Sanchez, a Department of Insurance spokeswoman, said. “It also serves to undermine our efforts to restore competition to all areas of our state, so people can get off the FAIR Plan and back to the regular market.”
The big picture: The FAIR Plan serves as the state’s last resort option for individuals unable to secure private insurance for properties deemed too risky to insure. More Californians are turning to the plan, with over 555,000 home policies as of March, doubling since 2020.
- In response to the wildfires that destroyed almost 17,000 structures and claimed at least 30 lives, the FAIR Plan estimated losses of about $4 billion from the Eaton and Palisades Fires. As of February, it had paid out over $914 million. The lawsuit, as alleged by Consumer Watchdog, will not impact the FAIR Plan’s claims payout ability.
