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Last week, the Department of Insurance ordered the state’s last resort home insurance company to answer allegations that it illegally dealt with smoke damage claims, prompting policyholder complaints and multiple lawsuits.
But consumer advocates are skeptical that legal action has been delayed for a long time, and some people are skeptical that the move will reform the controversial California fair plan.
The July 31 filing threatens plans operated by state licensed home insurance companies and poses fines and fines of up to $10,000 for each violation. The plan could defend itself in front of a divisional administrative law judge with an unplanned hearing.
“I spoke with wildfire survivors who wanted to lose their homes due to the flames rather than endure the stress and confusion of navigating claims of smoke damage,” Insurance Secretary Ricardo Lara said in a statement. “This is unacceptable.”
Planning spokesman Hilary McLean said in a statement that insurers “welcome the opportunity to engage in this process,” and that over the past year they have been working with the department to “renew and clarify the policy language on smoke damage.”
Handling of Fairplan’s smoke claims has angered homeowners who say they were told to try and close the claim, even after the home has penetrated soot, ashes and other fire stations, instead of promptly providing industrial hygiene testing for toxic substances and professional cleaning services.
However, policyholder advocates question why it took the department so long to file a lawsuit after a 2022 independent investigation found 418 violations of state and insurance laws.
“That delay caused real harm. Eton and Palisade’s fire survivors unnecessarily suffered under the denial of the smoke damage of a fair plan as Lara was unable to act on the results of his own investigation,” said Joy Chen, chief executive and co-founder of the Eton Fire Survivor Network, a community group formed after the January 7th fire.
Gabriel Sanchez, director of the Insurance Press, said regulators worked systematically to file the case.
“Taking enforcement actions is a legal process, not a political decision. We need to build strong evidence records to meet legal standards and ensure lasting accountability. That’s exactly what we did,” Sanchez said.
Harvey Rosenfield, lawyer and founder of the Los Angeles advocacy group Consumer Watchdog, said she was a critic of Lala, who accused her of being too uncomfortable in the insurance industry.
He cited the Mercury Insurance case. The case took control measures in 2004 on allegations that auto insurance customers were paying illegal broker fees. Mercury ultimately paid a record $41 million penalty, but for 15 years the case was tied to court after multiple appeals by the insurance company.
“This process could be a shield that insurers use to protect themselves from accountability,” Rosenfield said. “It raises the question of Lara’s true intentions, but he was able to prove us all wrong.”
The cause order submitted by the department condemns a fair plan adopted in 2017 that rejects allegations of smoke damage through reliance on illegal policy language.
Market behavioral trials of random samples of claims processed in the plan from January 1, 2017 to March 16, 2021 found 418 violations of state and insurance laws.
The plan acknowledged several findings but challenged others, including that its policy language violated the law.
The department threatened to take administrative action on the issue, but did not do so until last week.
Sanchez said he has held an investigation hearing in 2022 and has put many escalating legal action on fair plans, including issuing a May 2025 legal directive that is illegal and unenforceable to the language of “permanent damage” policy.
The fair plan claim became an acute issue after the January 7 fire, due to the January 7 fire and the growth in the market share of insurance companies as commercial officials left the market.
The plan covered less than California homeowners in 2021, but enrollment reached around 452,000 three months before the fire.
The number of homes around the plan for the Pallisard and Eaton fire zones rose nearly 50% last year, according to Times analysis. The plan covers almost 591,000 policyholders statewide as of June 25th.
The Fair Plan has been sued multiple times for the smoke damage policy language.
The division’s lawsuit follows a landmark pretrial ruling by a Los Angeles Superior Court judge in June, which found the language to be illegal in a 2021 case involving a former Mono County homeowner.
However, since that ruling, the plan has continued to reject allegations of smoke damage based on the 2017 policy language, and it argued that the decision did not set a precedent, said Dylan Schaffer, the lawyer who handled the lawsuit.
Schaffer said he plans to win the remaining legal matters at trial and seek a state injunction on the matter if it could force a plan to resume the thousands of smoke damage claims filed since the lawsuit occurred.
“It remains to be seen whether departmental actions that were supposed to take place in 2022 will do anything to help consumers, including those affected by the Los Angeles wildfires,” he added.
Amy Bach, lawyer and executive director of United Policy Holder, a San Francisco-based consumer advocacy group, said it is important for the department to work with other lawyers who have already filed lawsuits against the plan.
“[They] It is a very important source of consumer protection that complements government agencies,” Bach said.
The legal action taken by the department will submit a formal 15-day response to the fair plan, followed by a hearing. The hearing allows both parties to present evidence, and the judge then makes recommendations to Lala about how the insurance company should treat.
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