After four years of litigation, key limitations in the California FAIR Plan fire policy were found to be unlawful in Jay Aliff v. California FAIR Plan Association. Originally designed to be California’s insurer of last resort, the California FAIR Plan has increasingly become the default plan for those in California who do not qualify for policies with private insurers.
The decision is significant, not only because of the vast number of individuals who have come to depend on FAIR Plan policies for coverage, but also because so many of these policies have been implicated by the devastating wildfires that engulfed the Los Angeles area in January of this year, especially by those whose properties did not burn but instead were rendered uninhabitable because of smoke, soot and ash. The decision speaks directly to the plight of those policyholders by clarifying that a property insurance policy cannot redefine core property insurance concepts like “direct physical loss” or “smoke damage” in ways that unlawfully restricts coverage.
“Direct Physical Loss” Does Not Mean Permanent Alteration or Destruction
The FAIR Plan redefined “direct physical loss” in 2017 to require “permanent physical changes” to the property. The court found that the FAIR Plan policy unlawfully narrowed coverage by requiring that all physical loss be “permanent.” The court, citing the California Supreme Court’s 2024 decision in Another Planet Entertainment v. Vigilant Insurance Co., 15 Cal.5th 1106 (2024), emphasized that physical loss does not require property damage be permanent—only that the property be demonstrably altered or changed. Another Planet distinguished “persistent” pollution, which constitutes loss, from “evanescent” presence, which does not…