California advocate sues to keep wildfire claims costs off policyholders

The insurance industry's trade association criticized a lawsuit filed April 14 by Consumer Watchdog against California's insurance commissioner, saying it would block insurers' ability to recoup their costs from the FAIR Plan homeowners insurance of last resort.

The Los Angeles-based consumer advocacy group stated the purpose of its litigation was to stop the FAIR Plan from passing on the costs of the January wildfires to policyholders.

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"Consumer Watchdog's lawsuit is a reckless and self-serving stunt that threatens to make California's insurance crisis even worse and harm the consumers Consumer Watchdog purports to represent," stated Denni Ritter, department vice president for state government relations at the the American Property Casualty Insurance Association (APCIA), in a press release. "Blocking recovery of the additional costs insurers have paid to prop up the FAIR Plan would jeopardize the last-resort coverage option for homeowners—and push our fragile insurance market closer to total collapse. It is critical that the costs be spread equitably across a broader pool of insured customers to help restore California's insurance market and protect access to coverage for all consumers."

According to Consumer Watchdog, the $1 billion assessment for the FAIR Plan issued by California insurance commissioner Ricardo Lara on February 11 allows insurers that were assessed to pass on about $500 million as surcharges to policyholders.

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"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," stated Ryan Mellino, an attorney at Consumer Watchdog, in a press release.

The litigation argues that Commissioner Lara decided the assessment without public input or participation, violating the state's Administrative Procedure Act. The litigation also alleges that passing costs on to policyholders violates the laws governing the FAIR Plan, and the commissioner does not have discretion to do so. Insurers are required to share in both the profits and losses from the FAIR Plan, according to Consumer Watchdog's litigation filing.