The Pacific Palisades fire, as seen on Jan. 8, 2025
LOS ANGELES - The California FAIR Plan’s policy to determine whether wildfire smoke damage is covered on a property owner’s insurance policy represents an unlawful limitation on policyholders’ coverage, a Los Angeles County Superior Court judge has decided.
Judge Stuart M. Rice handed down the decision on June 24, concluding that the FAIR Plan’s requirement that smoke damage be either “visible to the unaided human eye” or “detected by the unaided human nose of an average person” is unlawful under the state’s Insurance Code. The policy restricts the coverage provided by the state’s insurer of last resort in a way that falls short of what policyholders could reasonably expect, Rice said.
In addition, the court found the FAIR Plan’s method of resolving disputes over smoke damage claims illegal in light of the “sight and smell” policy. The policy rejects smoke damage verification based on the insured’s subjective senses or by laboratory testing.
The decision comes in a 2021 case of Jay Aliff v. California FAIR Plan Association, but the outcome is expected to affect more recent cases dealing with the extent of property damage coverage in the Eaton and Palisades fires that took place in January.
“... The proliferation of cases on these same (insurance coverage) issues, including in newly filed cases in this county brought to this court’s attention in a notice of related cases, indicates that this is an issue of importance …” Rice said in his opinion.
The barring of lab tests to determine the extent of smoke damage for FAIR Plan policyholders creates an “insufficiency,” according to the opinion.
“Being unable to resort to their own senses or laboratory tests, it is entirely unclear how an insured could determine whether a particular loss is covered or not,” Rice said. “As Plaintiff points out, the ‘unaided human eye’ and ‘average human nose’ are not exact terms, and a lay insured would be in no position to know what sort of smoke damage this clause would or would not cover.”
Los Angeles County Superior Court Judge Stuart Rice
In a statement emailed to the Southern California Record, the California FAIR Plan defended its current smoke damage policy and seemed to accept the Superior Court ruling.
“The FAIR Plan is reviewing the decision,” the statement said. “As the FAIR Plan is in the process of updating its policy language to reflect the manner in which claims have been adjusted since last year, it is unlikely to pursue an appeal.”
The FAIR plan has been working with the state Department of Insurance to clarify its policy wording related to smoke damage to ensure consistency, the insurer said.
“Our goal is to continue providing fair and reasonable coverage for wildfire-related losses while maintaining the financial integrity of the FAIR Plan for all policyholders,” the statement said.
But the insurer, which is managed by all insurance companies licensed to write property/casualty policies in the state, said its coverage of smoke damage is currently in sync with burn damage.
“All FAIR Plan burn damage and smoke damage claims are handled consistent with California law,” the statement said. “The FAIR Plan eliminated the use of the ‘sight and smell’ test last year and has never enforced the smoke-dispute resolution provision.”
Last year, the Superior Court denied plaintiff Aliff’s motion for class certification. In the June 24 ruling, Rice rejected the plaintiff’s argument that a violation of the state Unfair Competition Law occurred.
Although the FAIR Plan has been the target of multiple lawsuits by victims of the Eaton and Palisades fires, most of the fire litigation in the Eaton Fire has been directed at Southern California Edison. As of May 1, more than 130 lawsuits have been filed against public utility over alleged negligence, according to New York-based King Law.
