LOS ANGELES, April 15, 2025 -- Consumer Watchdog sued the California Department of Insurance and Commissioner Ricardo Lara to protect California homeowners from hundreds of millions in surcharges that could soon appear on their insurance bills. The surcharges result from a decision reached by the Commissioner last summer to allow the insurance companies that comprise and operate the California FAIR Plan, the state's "insurer of last resort," to pass-through costs to their policyholders when the FAIR Plan is forced to "assess" those companies for funds after a catastrophe.
Because of that decision, homeowners across California are currently on the hook to pay up to $500 million worth of the $1 billion FAIR Plan assessment approved on February 11, 2025 after the Palisades and Eaton Canyon wildfires. There is no upward limit on the amounts that can be passed-through to homeowners in the future, and the next wildfires could see homeowners responsible for billions more in assessment costs. Consumer Watchdog's Petition for a Writ of Mandate asks the court to order the Commissioner to not approve any pass-throughs.
Download Consumer Watchdog's Petition/Complaint here.
"The Commissioner's decision to allow pass-throughs is unjustified on multiple levels" said Consumer Watchdog staff attorney Ryan Mellino. "Homeowners and renters across the state will be charged more and the FAIR Plan won't be depopulated. The real beneficiaries of this decision are the insurance companies that make up the FAIR Plan. We look forward to defending the rights and pocketbooks of Californians and stopping this socialization of FAIR Plan losses at the public's expense, while the FAIR Plan's profits will wholly remain with the insurance companies."
Consumer Watchdog is challenging the pass-throughs on multiple grounds. The Petition alleges the Commissioner's decision to allow insurance companies to shift potentially billions of dollars in costs to homeowners was reached without any public input or participation, in violation of the Administrative Procedure Act. According to the Petition, rather than taking the time to weigh public comment on the merits of the proposal, the pass-throughs were announced as a done deal without prior notice and implemented through informal "bulletins" posted on the Department's website despite the potentially enormous economic impact.
Additionally, the Petition alleges that the pass-throughs directly violate the FAIR Plan statutes, which contain no authorization for pass-throughs and require insurance companies to proportionally share in both the profits and losses of the FAIR Plan, and that the Commissioner lacks any discretion to permit insurance companies to shift assessment costs onto homeowners. "It is palpably unfair to allow companies that for decades have privately enjoyed the profits of the FAIR Plan to now foist its losses onto their policyholders," commented Mr. Mellino.
As stated in the Petition: "In violation of the Insurance Code, Respondent [Lara] has claimed the power to shift the potentially unlimited financial burdens of FAIR Plan assessments from insurers to their policyholders through administrative fiat – what Respondent misleadingly characterizes as 'democratizing [the] rates.' But it is not 'democratizing the rates' to make policyholders pay for insurers' participation in the FAIR Plan while ignoring that policyholders did not participate in the decades of profits that insurers enjoyed from the FAIR Plan (and have no right to any future profits). For insurers, that is 'heads, you win, tails, policyholders lose.'"
While the Commissioner has often stated his desire to keep homeowners off the FAIR Plan, the Petition claims that allowing pass-throughs neither addresses the underlying causes of the FAIR Plan's rapid expansion nor encourages insurance companies to stop their non-renewal programs. If anything, relieving insurance companies of some or all of their potential financial burdens will further incentivize the FAIR Plan's continued growth.
"We recognize that the FAIR Plan has dramatically grown in recent years and agree with the Commissioner that something must be done to address the situation," stated Mr. Mellino. "But the answer is not a unilateral bailout of hundreds of millions – and in the future, potentially billions – of dollars for insurance companies at the expense of their policyholders. California homeowners have suffered enough, and unlawful pass-throughs are just another insult on top of the significant injuries they've already faced."
The Petition was filed in Los Angeles Superior Court. The case number is 25STCP01367.
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