A California judge ruled that handling allegations of smoke damage caused by the state’s Barebone home insurance program was illegal. This is a decision that could have broad meaning as insurance companies are increasingly dealing with the aftermath of wildfires.
While home insurance covers a wide range of fire damages, there is an increasing number of disputes over what damages must be covered if the flames do not torch your property. Tuesday’s decision by Los Angeles Superior Court Judge Stuart M. Rice is a victory for state homeowners where catastrophic wildfire risks have been strengthened along with the brewing home insurance crisis.
The specific case involved Jay Arif, who in 2021 appealed to pay insurance for his home near Lake Tahoe. His lawsuit challenged California’s Fair Insurance Requirements Plan, or the last resort options for those removed by the fair plan, the state’s high-risk insurance pool, or private insurance companies.
With high premiums and basic coverage, the fair plan was designed as a temporary safety net until policyholders could find more permanent options. Today, this has become a default option for many, with the number of housing policies reached 550,000 in March, more than doubled since 2020.
Reports from other urban wildfires show increased levels of heavy metals, including lead and polycyclic aromatic hydrocarbons (PAHs), such as benzene, which burn at incredibly high temperatures, leading to negative health risks. However, insurance companies have not performed standardized testing of these contaminants.
Despite the long-standing decision by the California Department of Insurance that the threshold was illegal, the fair plan has been scrutinized for years on allegations of immediate denial of smoke damage unless there is evidence of permanent physical changes.
Aliff’s lawsuit alleges that the fairness plan at the time was not eligible for compensation as a “direct physical loss” to the home, citing a partial denial that the fire department said could be cleaned, providing only a portion of the money it expected to cover the costs to correct the damages.
“Burning is as scary as cyanide. You can’t release it with Swiffer,” said Dylan Schaffer, a lawyer at Aliff, referring to the disposable mop brand.
Schaffer is also a lawyer for many other litigation against a fair plan related to the issue of smoke damage, and said the new court’s ruling is a game-changer in California’s insurance laws while thousands of homeowners in the recent Palisades and Eaton Wildfires are still fighting for coverage.
“This is the most important decision in California’s insurance law in decades,” Schaffer said. “There are lines drawn in the sand because it relates to where the carrier can carve out responsibility and avoid it.”
The ruling said the way fairplan limits smoke damage compensation for the definition of “direct physical loss” “this language limits coverage reasonably anticipated by the insured in a way that is not prominent, explicit and unclear.”
The judge also said that in a fair plan it was illegal to require that smoke damage be “detected by the nose of the average person’s unsupported human” rather than “visible to the assistant” or “subjective sensation or laboratory test of the (insured)”.
“It is completely unclear how the insured can determine whether certain losses are covered, as they cannot rely on their own senses or clinical testing,” the court ruling states.
Fairplan spokesperson Hillary McLean said in a statement that the insurer has been working with the state’s department of insurance to update the insurance documents, already eliminating what is called sight and smell testing.
“Our goal is to continue to provide fair and reasonable coverage of wildfire-related losses while maintaining the financial integrity of all policyholder fair plans,” McLean said in a statement.
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