California FAIR Plan Faces Legal Action Over Alleged Smoke Damage Claim Denials

California Insurance Commissioner Ricardo Lara has initiated a rare enforcement action against the state’s FAIR Plan, alleging the insurer violated multiple claims settlement laws by improperly denying wildfire smoke damage claims. At the heart of the case is the FAIR Plan’s policy language change in 2017, which redefined covered smoke damage as only ‘permanent physical changes.’ Though the FAIR Plan promised the revision wouldn’t reduce policyholder benefits, the Department of Insurance has since received hundreds of complaints alleging otherwise.

The enforcement order demands that the FAIR Plan cease any violations of the Fair Claims Settlement Practices Act and mandates a formal hearing to evaluate its policy language and claims handling. A potential cease-and-desist order and monetary penalties could follow, depending on findings at the hearing. Notably, a separate court ruling in June found the FAIR Plan’s smoke damage language illegal and may soon require the insurer to revise its policies and revisit denied claims dating back to 2021.

The FAIR Plan has seen rapid enrollment growth, reaching nearly 600,000 policyholders amid a tightening private insurance market. However, the spike in wildfire activity—and the growing awareness of health risks from lingering toxins in smoke—has intensified scrutiny on how insurers, including the FAIR Plan, assess and settle these complex claims.

Experts and advocates argue that science around smoke damage remains unsettled, and insurers must keep up with evolving health risks. Meanwhile, Lara has established a new Smoke Claims & Remediation task force to help shape future regulatory standards. The FAIR Plan has until mid-August to formally respond, with the insurance commissioner expected to make a final ruling following the hearing.