California FAIR Plan Smoke Damage Denial

The California Department of Insurance has taken an aggressive step to protect wildfire survivors, filing an Order to Show Cause against the California FAIR Plan Association for systematically denying and limiting smoke damage claims. ¹ Commissioner Ricardo Lara announced the action in a press release following a surge of consumer complaints from residents affected by the Palisades and Eaton Fires earlier this year, who reported that their claims for smoke damage were either denied or inadequately handled. At the heart of the issue is the FAIR Plan’s insistence that smoke damage must result in “permanent physical damage” to be covered. This is a standard the Department has deemed unlawful.

The Department’s investigation paints a troubling picture of the FAIR Plan’s practices. Beginning in 2017, the FAIR Plan quietly altered its policy language to redefine “direct physical loss” as requiring “permanent physical changes” to insured property. This change had the effect of limiting coverage for smoke claims that did not leave visible, lasting marks on a structure. According to the Department, this restrictive language not only undermined the protections of California’s standard fire insurance policy but also led to hundreds of improper denials. The recently filed Order to Show Cause accuses the FAIR Plan of committing at least 418 violations of California’s consumer protection laws, including misrepresenting policy terms, failing to conduct fair investigations, and denying legitimate claims without reasonable justification.

Consumer stories outlined in the legal filing are both frustrating and alarming. Homeowners described properties filled with toxic smoke and ash, uninhabitable conditions, and denied remediation services despite clear evidence of smoke intrusion. In several cases, field inspectors for the Fair Plan allegedly performed cursory inspections and instructed homeowners to clean their homes themselves with basic household tools, such as mops and vacuums, rather than arranging professional remediation. The Department argues that these actions demonstrate not just isolated mistakes, but a systematic business practice of unfair claims handling.

This enforcement action is part of Commissioner Lara’s broader campaign to hold insurance companies accountable for their claims practices in the wake of California’s worsening wildfire crises. The Department is also conducting market conduct examinations of other insurers, including State Farm, to ensure that wildfire claims are handled in compliance with state law. Commissioner Lara emphasized that the FAIR Plan, although an insurer of last resort, is not exempt from consumer protection statutes and must meet the same claims-handling standards as private carriers. His office has also launched the Smoke Claims & Remediation Task Force to develop statewide standards for evaluating and cleaning smoke damage, aiming to close a long-standing gap in the insurance landscape.

The stakes are high for both consumers and the FAIR Plan. The Department is seeking cease-and-desist orders, monetary penalties of up to $10,000 per willful violation, and sweeping corrective measures. For homeowners, this action signals a renewed commitment by regulators to ensure that insurance coverage fulfills its promise in times of crisis. Commissioner Lara’s message is clear that policyholders deserve fair treatment, and insurance companies that use unlawful claims tactics to avoid paying smoke damage claims will face significant consequences.

Thought For The Day

“We will not tolerate insurance companies breaking the law and denying Californians the coverage they deserve, including the FAIR Plan.”
—Richard Lara

¹ In the Matter of California FAIR Plan Association, No. DISP-2025-00281 (Cal. Dep’t Ins. July 31, 2025).