United Policyholders (“UP”), a non-profit 501(c)(3) whose mission is to be a trustworthy and useful information resource and a respected voice for consumers of all types of insurance in all 50 states, launched its national Restoring the Insurance Safety Net Coalition (RISC) initiative in 2020. The purpose of this initiative is to reverse the trend of insurance policy re-writes that are shrinking coverage for damage to homes. One of its stated approaches is to identify wording that is causing protection gaps. I encourage you to read more about the initiative at uphelp.org/risc.
Today’s blog relates to a coverage gap issue that is increasing in frequency for California homeowners, specifically, homeowners with California FAIR Plan Companion Endorsements, or endorsements serving the same function. If you’re a California policyholder or policyholder advocate and have not yet read Dan Veroff’s blog, Negligence by Captive Agents Is on the Rise Because They Don’t Understand the California Fair Plan But Are Now Brokering Them By the Truckload, I encourage you to do so. Dan explains how, in response to increased risk of loss due to wildfire frequency and severity over the past decade, some big-name insurers are, “selling their usual homeowners policies with a twist – exclusions for fire losses…” and that “[c]arriers can and will do this so long as the customer also gets a fire policy from the California Fair Plan – a quasi-public insurer of last resort that provides fire coverage if no one else will.” The FAIR Plan policy is meant to supplement the previously existing homeowners policy and replace the causes of loss no longer covered.
AAA Insurance, for instance, issues its “FAIR Plan Companion Endorsement – California,” when it no longer wishes to insure fire (for instance) as a covered cause of loss. The agreement section reads:
In consideration of a reduction in premium, this endorsement restricts and eliminates coverage under your policy for any causes of loss which are covered or which are available for coverage under a California Fair Plan Association policy (FAIR Plan policy). (emphasis added)
The AAA endorsement then goes on to list the causes of loss that are excluded from the AAA homeowners policy, the causes of loss for which a FAIR Plan policy may offer coverage:
We do not cover direct loss to property described in Coverage A – Dwelling, Coverage B – Other Structures, Coverage C – Personal Property and any Scheduled Personal Property under the HO 61 61 1147 0813 endorsement caused by:
1. Fire or Lightning
2. Windstorm or Hail
3. Explosion, including its shock waves.
4. Riot or Civil Commotion
5. Aircraft and their sonic booms including self-propelled missiles and spacecraft.
7. Smoke, meaning sudden and accidental damage from smoke.
8. Volcanic Eruption
9. Vandalism or Malicious Mischief
However, it is important to keep in mind that the FAIR Plan Dwelling Fire Policy is a named peril policy, which provides coverage for damage caused by the specific causes of loss listed in the policy.1 As a default, this includes (1) Fire and Lighting, (2) Internal Explosion, and (3) Smoke. Optional coverages are available for an additional cost. Unfortunately, we have seen far too often that these “optional coverages” (i.e., windstorm or hail, riot or civil commotion, aircraft, vehicles, volcanic eruption, and vandalism or malicious mischief), many of which were provided by a policyholders’ previous policy, are not being purchased. Many policyholders are thus left with a large reduction in coverage without realizing it, or without having this reduction properly explained to them.
The FAIR Plan companion endorsement for the admitted insurer’s homeowners policy puts the responsibility on the policyholder to ensure they are replacing the eliminated causes of loss. In fact, the AAA endorsement states:
We will not cover loss or expense arising out of any of the causes of loss listed in 1. through 9. above even when your FAIR Plan policy does not cover the loss or expense. (emphasis added)
If you are a California policyholder with a FAIR Plan companion policy, check to see if you also purchased coverage for the “optional coverages.” If you did not, be aware that you may no longer be covered for damage resulting from windstorm or hail, riot or civil commotion, aircraft, vehicles, volcanic eruption, and vandalism or malicious mischief.