California Ruling Could Force Change to Home Insurance Rules

Newsweek

02-07-2025

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A scathing court ruling that found California's fire insurer of last resort in violation of state law for denying policyholders coverage for wildfire-related smoke damage could have major implications for the state's home insurance market, according to experts.
On June 24, Los Angeles Superior Court Judge Stuart M. Rice ruled that the California FAIR Plan's smoke-damage policy, which requires smoke damage to be "visible to the unaided human eye" or capable of being "detected by the unaided human nose of an average person" rather than being perceptible "by the subjective senses of [the insured] or by laboratory testing" is unlawful under state law.
The decision was taken in response to a lawsuit filed in 2021 by Lake Tahoe homeowner Jay Aliff, whose property was damaged in the Mountain View fire in November 2020. But it could now impact thousands of lawsuits filed since 2017, including claims related to the devastating blazes that ravaged Los Angeles County in January.
A man walks through the remains of burned vehicles and homes in Altadena, California, on January 24, 2025.
A man walks through the remains of burned vehicles and homes in Altadena, California, on January 24, 2025.
ALI MATIN/Middle East Images/AFP via Getty Images
How California Insurers Have Approached Smoke Damage
Several California homeowners whose homes were not destroyed by fires but significantly damaged by smoke, toxic ash and debris found that their insurers would not pay to cover the clean-up and remediations—all expensive activities.
Luis Cazares, whose home in Altadena survived the January fires but was made inhabitable by toxic levels of lead brought in by smoke, discovered the gap in his coverage the hard way. After asking the state's insurer of last resort to help him remove and replace contaminated objects and clean up the property, Cazares received a stark rejection—"Clean it yourself"—and a damage claim payment much below what his coverage would include.
Last month, he filed a lawsuit against the FAIR Plan—one of many initiated by wildfire survivors affected by the January blazes. For all of them, last week's court ruling was a victory and a sign that things are changing in a state that seemed to turn a blind eye toward smoke damage.
In May, California Department of Insurance Commissioner Ricardo Lara admitted that, for decades, the state had lacked consistent guidelines on how to approach insurance coverage and clean-up of smoke-damaged homes.
"The result is confusion, delays and families forced to return to unsafe homes. Consumers are angry and rightly so. Californians deserve better," Lara said, announcing the creation of a task force within the CDI that would recommend "science-based standards, best practices for smoke restoration of homes and personal property, and enforcement tools to the Department that ensure Californians are treated fairly in the wake of wildfire smoke exposure."
Judge's Decision
It has taken years for a judge to recognize the FAIR Plan's approach to smoke damage as "unlawful," despite years of complaints from policyholders. The lawsuit that triggered the decision is years old and has been fought tooth-and-nail by the state's fire insurer of last resort.
"The FAIR Plan filed numerous challenges to the complaint, and because the case was originally filed as a putative class action, there was a battle over class certification, which was eventually denied," Joseph Balice, a California-based attorney working for Haynes Boone Insurance Recovery, a company that helps policyholders recover insurance coverage benefits when carriers deny, delay or underpay claims, told Newsweek.
The homeowner, Aliff, moved for summary adjudication—the California state court equivalent of partial summary judgment—in March 2025, and the ruling was issued late last month.
"California law requires that homeowners insurance policies provide at least as much coverage as the standard form set forth in California Insurance Code section 2071," Balice said.
"In this case, the court found that the FAIR Plan was not providing at least the minimum coverage required because it had limited coverage for smoke damage by imposing additional qualifications and conditions not permitted under the statute."
How Ruling Could Change California Insurance Market
Aliff's attorney, Dylan Schaffer, described the judge's ruling last week as "the most important decision in California insurance law in decades."
Considering likely appeals that may follow the judge's decision, the FAIR Plan is expected to change its policy forms to conform to the court's ruling and potentially pay other claimants whose claims were previously denied under the existing language that was found to be unlawful, Balice said.
"Homeowners that have previously had their claims denied based on these unlawful provisions should seek to have their claims re-examined and consider legal action," he urged. "And this decision sets a valuable precedent going forward, and we would expect any insurance company imposing these 'unlawful' restrictions on coverage to revise their policies to remove them and provide the coverage California law requires."
FAIR Plan spokeswoman Hilary McLean already said that the insurer is working with California regulators to revise its language around smoke damage.
"As the FAIR Plan is in the process of updating its policy language to reflect the manner in which claims have been adjusted since last year, it is unlikely to pursue an appeal," she told the Los Angeles Times.
Newsweek contacted the FAIR Plan for comment by email on Wednesday.