Californians have many questions after being non-renewed by their insurance companies and unable to find another company that will insure their properties. The losses from recent wildfires have caused carriers to scale back, and some have completely ceased writing insurance in several California regions.

The California FAIR Plan remains the only option for many of these Californians. So, what is the FAIR Plan?

“FAIR” stands for Fair Access to Insurance Requirements. The FAIR Plan is an insurance pool that was established in the 1960s to assure the availability of basic property insurance for those who cannot get insurance on the standard market.

This is not a taxpayer subsidized insurance pool. All California licensed property insurers are required to be part of the FAIR Plan as a condition of doing business in this state. Thus, each insurance company operating in California backs the FAIR Plan, ensuring strong liquidity in the event of disaster, and each insurer participates in the gains and losses of FAIR Plan policies.

FAIR Plan policies are truly basic. They provide much less coverage than a standard market insurance policy. As a result, insureds need to be aware that they are getting much less than they would from a standard market policy.

Brokers must accurately explain the coverage to their customers and make it clear that FAIR Plan coverage is not the same or similar to the customer’s non-renewed standard market policy. Not doing so could be a devastating mistake sure to result in a lawsuit if a loss occurs.

The FAIR Plan Association itself sees this huge potential for insureds to be misled and is proactively trying to educate the public. According to insurance broker and expert witness Karl Susman:1

It is clear to me that the FAIR Plan Association is deeply concerned about consumers procuring insufficient insurance for their homes. They continue to send out numerous bulletins to policyholders with information ranging from brief summaries on what the FAIR Plan policy does and does not cover.

In order to help educate consumers as well, we’ve compiled and distilled some of key information on the FAIR Plan’s website. According to their site, the standard FAIR Plan homeowners policy covers damage and loss from specific perils only, including fire, smoke, explosion, and lightning.2 This differs from most standard market policies which provide coverage against all risks of loss not otherwise excluded. For an additional price, consumers can add coverage for wind, hail, and vandalism. The FAIR Plan homeowners policy does not cover water damage or theft, and it does not provide liability insurance. For those coverages, consumers can purchase an additional Difference in Condition (“DIC”) Policy from private insurers.

Another limiting factor, the base level FAIR Plan homeowners policy provides coverage for the main dwelling, but no sperate coverage limit for other structures like a standard market policy will. Instead, a small portion of the dwelling insurance limits, (10%), can be applied to other structures on the property. An insured would have to purchase additional coverages for those other structures, like a granny unit or barn.

The base FAIR Plan homeowners policy does cover losses to personal property and some landscaping. But ordinance and law and debris removal coverage must be purchased separately. There is no separate coverage available for alternative living expenses, but an insured can use a small portion of the dwelling limits for that purpose, again 10%.

The FAIR Plan also has a maximum limit of the amount of insurance available under homeowners policies. Dwelling limits cannot exceed $1.5 million, which will be enough for some insureds, but not many others in high-risk areas like Malibu or certain areas of Northern California. Homeowners can also select from a range of deductibles between $100 and $10,000 to save money on their premiums.

Commercial buildings can also be insured through FAIR Plan. These policies protect against more perils than the FAIR Plan homeowners policy. The coverage limits for commercial property policies cannot exceed $3 million for structures and $1.5 million for any other limits, except contents personal property, which can be insured for up to $5 million under certain circumstances.

Businessowners can also buy a FAIR Plan policy. These policies include more coverages than just structure coverage, such as business liability, business income, and extra expense coverage. These may have to be purchased for an additional cost if desired. The maximum limits available for a structure under these policies is $2 million; $1 million for business personal property; and $300,000/$600,000 for business liability insurance.

Brokers should be very careful to explain the full details when selling FAIR Plan policies, even if the policy itself spells out its limitations clearly. Policyholders are often ignorant of the extent of their coverage and rely on their brokers to explain it to them. Brokers may be held liable for misrepresenting the scope of coverage or failing to explain how the FAIR Plan is different than the standard market policy their customer is used to having.

Our attorneys are here to help you with your insurance issues in California.
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1 https://expertwitnessprofessionals.com/; https://www.susmaninsurance.com/
2 See, generally, https://www.cfpnet.com/

  • Leland Coontz

    As a former adjuster I adjusted California Fair Plan claims for about 9 years. The CFP doesn’t have “alternative living expense” coverage (I think you meant to say “Additional Living Expense”). The Fair Plan has “Fair Rental Value” which can often be much better coverage. The insured is not required to “incur” the expense; they can be paid regardless of whether they pay for temporary housing or not. Unlike HO3 and similar policies with “Additional Living Expense”, the insured isn’t required to submit receipts to get paid, although they might need to document the rental value of their home. And they won’t be reimbursed for food expenses. Water losses emanating from the plumbing system are usually excluded, but can be covered if, for example, the insured purchased Vandalism and Malicious mischief coverage and the water damage was due to vandalism. Vehicle damage, one of the covered perils, can also result in covered water damage if a vehicle breaks plumbing. Lots of things that would appear at first glance to be excluded can sometimes be covered if they can be tied back to one of the named perils. One potential pitfall with the CFP policy is the exclusion for Other Structures that are rented out. If a homeowner rents a detached garage apartment and the garage burns, there is no coverage. In such cases it would be wise to carefully analyze if the “detached” garage is truly detached; sometimes if it is connected to the Dwelling by a patio cover or other building component the Fair Plan will agree to pay the loss under the Dwelling limit. Leland Coontz, Public Adjuster

    • DANIEL VEROFF

      Thanks Leland! You are correct