When a massive wildfire ravaged Sarah Mapel’s Northern California neighborhood in late summer 2020, she felt fortunate that firefighters were able to save her historic home, which was built in 1898, using water from a nearby creek. However, the process of making her home safe to live in again became a lengthy legal battle with her insurer, the California FAIR Plan Association. This insurance pool, established by state officials in 1968, offers coverage to residents and business owners in wildfire-prone and vulnerable areas who are unable to secure coverage from private insurers.
Mapel’s troubles with the FAIR Plan began when her insurer sent her a $1,151 check for a repair estimate that exceeded $50,000, according to documents. This led to months of challenges and frustrations. Thousands of victims from some of the costliest wildfires in Los Angeles are now facing a similar arduous process and limited coverage. Over 3,600 policyholders in areas like Altadena and Pacific Palisades have filed claims with the FAIR Plan to recover some of their losses, as reported in a recent update.
Moreover, a recent policy change issued by Ricardo Lara, California’s insurance commissioner, may require all FAIR Plan policyholders to pay fees to participating insurers. This change, part of a broader effort known as the Sustainable Insurance Strategy, aims to ensure the FAIR Plan’s financial stability. However, it means that all policyholders, not just those impacted by recent wildfires, could bear some of the damage costs previously assumed to be covered by the insurer.
Property owners have often expressed frustration with private insurance companies’ handling of claims following disasters like fires and hurricanes. However, many consumers dealing with the California FAIR Plan have encountered significant difficulties in receiving compensation for their losses, according to an NBC News investigation.
The FAIR Plan has also been criticized for its lack of transparency regarding its operations, with minimal information shared with the public or the state’s Department of Insurance. Despite a 2022 assessment indicating profitability for the insurance companies overseeing the plan, policyholders have been left feeling dissatisfied with the situation.
California, being the largest insurance market in the country, has faced challenges from natural disasters like wildfires and earthquakes, leading some property and casualty insurers to suffer losses. As a result, some insurers have withdrawn coverage from high-risk areas or ceased operations in the state, prompting residents to turn to the FAIR Plan for insurance.
Established to provide coverage for those unable to secure insurance from private companies, the California FAIR Plan only covers losses caused by fire, lightning, internal explosion, and smoke, with residential policies capped at $3 million. Like similar FAIR plans in other states, California’s was created in 1968 by the governor and state Legislature with good intentions.
During periods of civil unrest, certain neighborhoods were ablaze as private insurers withdrew their coverage. To assist residents in these abandoned areas, states established Fair Access to Insurance Requirements (FAIR) plans, ensuring property protection for those left without insurance options. There are currently 33 FAIR plans throughout the U.S., managed by the National Association of Insurance Commissioners. These plans are financed by private insurance companies operating within the states, with profits, losses, and expenses shared based on market shares. One such resident, Sarah Mapel, managed to salvage her personal belongings after her home in Boulder Creek, Calif., was ravaged by the 2020 CZU Lightning Complex Fire.
However, customers of California’s FAIR Plan have raised concerns about the high costs associated with its policies. For instance, Malibu resident and city council member Bruce Silverstein noted that his basic FAIR Plan insurance costs around $9,000 annually, double the rate of his previous private insurer. Unlike private insurers mandated to disclose financial details to regulators, California’s FAIR Plan operates with limited transparency. The lack of information on executives and financial arrangements has prompted calls for greater disclosure, especially in light of potential losses from recent wildfires.
Estimates suggest that losses from the recent Los Angeles fires could amount to $30 billion, with the FAIR Plan possibly facing up to $8 billion in liabilities. Despite having only $377 million available to cover claims as of January 10, the plan holds 452,000 residential policies and $458 billion in total insurance exposure as of September 30, 2024. Concerns about operational deficiencies have been raised following examinations revealing violations in claims handling practices and settlement offers by the FAIR Plan.
In response to criticisms, a spokesperson for the FAIR Plan stated that it primarily serves as a catastrophe insurer and is adequately prepared to address customer claims. However, concerns persist regarding the lack of transparency and operational flaws highlighted in official assessments.
A 2022 investigation by the California Department of Insurance found shortcomings in the FAIR Plan’s operations, citing lack of transparency and inadequate funding. The report also highlighted financial reporting inaccuracies and failure to submit inspection reports as required. Furthermore, a group of policyholders claimed the FAIR Plan did not provide internal investigative reports to claimants as mandated by state law, leading to an ongoing lawsuit. These reports are essential for homeowners to review claim materials related to damage and repair costs determined by third parties. In response to criticisms and customer concerns, a spokesperson for the FAIR Plan stated that they were primarily focused on assisting policyholders impacted by the Southern California fires and disagreed with several claims made against them, declining further comment.
The California Department of Insurance has had disputes with the FAIR Plan regarding compliance with state regulations. In January 2021, after a lawsuit was filed by policyholders over coverage limitations and denials for smoke damage, Commissioner Lara’s office accused the FAIR Plan of unlawfully restricting coverage for certain claims. Despite this, the FAIR Plan refused to reverse any claim denials. The department expects the FAIR Plan to handle all claims, including smoke-related ones, in accordance with industry standards and legal requirements.
Bruce Silverstein, a Malibu city council member, shared his own challenges with the FAIR Plan, having ongoing litigation regarding a previous claim and another pending claim from the Franklin Fire in December 2024. He emphasized the need for state intervention to ensure homeowners receive their entitled compensation from the FAIR Plan. Silverstein urged the insurance commissioner and attorney general to take decisive action to hold the FAIR Plan accountable for fulfilling its obligations.
California’s FAIR Plan stands out for its lack of transparency compared to similar plans in other states, as it does not disclose financial statements or management information publicly. In contrast, FAIR plans in Louisiana, North Carolina, and Texas provide such transparency, as recommended by the 2022 Insurance Department report. The assessment emphasized the importance of enhancing transparency and public information dissemination to increase awareness.
The plan has not taken steps to enhance transparency and accountability, as its spokeswoman declined to provide explanations. A fire caused damage to Silverstein’s home in Malibu on Jan. 17. According to a report, California’s FAIR Plan exhibited weaker financial strength compared to plans of similar size, with lower capital levels, liquidity, limited access to external sources of capital, and minimal reinsurance coverage from outside insurers. The FAIR Plan lacked formal capital and liquidity management plans, as well as staffing levels below comparable plans, with only 133 employees compared to an average of 222 in other plans.
The FAIR Plan spokeswoman did not disclose whether policies had been revised based on the 2022 Insurance Department findings. An examination was initiated by the Insurance Department in April to evaluate the FAIR Plan’s responses to the report’s recommendations. Despite complaints from insurers about the California insurance market’s lack of profitability, the FAIR Plan has reportedly generated more profits than losses for its member insurers over time.
Assessments, where member companies contribute funds after a catastrophe, have not been imposed by the California plan since 1995, despite significant calamities in the state. Although insurers paid $260 million in assessments in 1994 and 1995, the FAIR Plan distributed $438 million to these companies since then. The profitability data raises concerns about the recent requirement for FAIR Plan policyholders to share wildfire losses with insurers, according to Schaffer, an Oakland lawyer who has litigated against the FAIR Plan.
Since Insurance Commissioner Lara’s tenure began in 2019, profits have not been returned to member companies without his approval. The FAIR Plan’s handling of the CZU Lightning Complex Fire case in 2024 was resolved after four years, with terms of the settlement undisclosed.
After experiencing the devastating impact of a fire that ravaged her home, Sarah Mapel found herself entangled in a frustrating battle with the California FAIR Plan, the state’s insurer of last resort for those unable to obtain coverage in the standard market.
Recalling the aftermath of the fire, Mapel described how her once-beloved house had become a shadow of its former self, cloaked in soot and ash that seemed to seep into every crevice of its redwood construction. The very air inside was tainted with toxins, triggering splitting headaches at the mere thought of reoccupying the space.
Despite eager anticipation for the restoration of water and power, Mapel’s hopes were swiftly dampened by the lack of communication and delays from the FAIR Plan. Weeks turned into months as she awaited the crucial report from the insurance adjuster, all the while grappling with the uncertainty of her situation.
The frustration peaked when Mapel discovered that the rental assistance provided by the FAIR Plan was diminished, leaving her in a precarious position compared to her neighbors with private insurance. Feeling unheard and unsupported, she made the bold decision to take matters into her own hands, lodging a complaint with the California Department of Insurance and enlisting legal representation to pursue justice.
In a David-versus-Goliath scenario, Mapel stood her ground, testifying about her arduous journey with the FAIR Plan at a crucial hearing. She highlighted the stark disparity between the promises of coverage and the stark reality of inadequate support in times of dire need.
Ultimately, the toll of the battle led Mapel to part ways with her once cherished Santa Cruz County residence, opting to sell it amidst the ongoing insurance saga. Relocating to San Francisco, she now resides as a renter, having severed ties with the FAIR Plan in favor of a more reliable insurance provider.
In reflecting on her experience, Mapel’s message to others facing similar challenges rings clear: resilience, strength, and unwavering advocacy are indispensable weapons in the fight for fair treatment. Her words of caution echo a sentiment shared by many who have navigated the labyrinth of insurance bureaucracy – remain vigilant, assertive, and unyielding in pursuit of what is rightfully yours.
As the dust settles on Mapel’s tumultuous journey, one resounding truth emerges: the FAIR Plan, often touted as a safety net for the vulnerable, may not always live up to its name. For those caught in its web, the road to resolution is fraught with obstacles and uncertainties, underscoring the need for vigilance and preparedness in the face of adversity.
Sarah Mapel’s story serves as a poignant reminder that in the realm of insurance battles, perseverance and self-advocacy are the keys to surmounting the challenges posed by bureaucratic juggernauts. Her journey stands as a testament to the resilience of the human spirit in the face of daunting odds, a beacon of hope for those who dare to stand up and demand their rightful place
