CA Judge Rules State Insurer of Last Resort Can’t Deny Smoke Damage Claims

California’s FAIR Plan may have to cover thousands of smoke-damage claims it had previously denied, following a Los Angeles Court ruling. And while that may be good news for homeowners across the state with previously rejected claims, critics warn the ruling could ultimately mean higher premiums for all FAIR Plan policyholders.

On June 24, Los Angeles County Superior Court Judge Stuart Rice ruled that the insurer of last resort’s comprehensive fire coverage falls short of the state’s Standard Form Fire Insurance Policy. The state’s insurance code provides coverage for any “lost by fire” damages and doesn’t differentiate this from smoke damage.

Since 2017, the FAIR Plan has required fire damage claims to demonstrate “direct physical loss” and “permanent physical changes” in order to be covered. Homeowners and consumer advocates have opposed the practice, saying it’s very difficult to prove smoke damage under such guidelines.

Under Rice’s ruling, the FAIR Plan may have to review, and perhaps cover, thousands of claims it previously rejected — including many that stem from the wildfires that struck the area earlier this year.

“This decision clearly says you can’t not pay for these claims,” Dylan Schaffer, attorney for the plaintiffs, said following the ruling.

Another strain on the FAIR Plan’s budget

Before the ruling, the FAIR Plan had already paid out more than $2.7 billion in claims stemming from the January wildfires in Los Angeles County. The payouts caused the FAIR Plan to ask the state’s insurance commissioner to levy a $1 billion special assessment on its member insurance companies. Insurance Commissioner Ricardo Lara approved the request and said insurers could pass $500 million of that assessment on to policyholders in the form of temporary supplemental fees.

As homeowners across the state have struggled to find coverage with private insurers, they’ve turned to the state’s insurer of last resort. As of March 2025, the California FAIR Plan had 573,739 policies in force — an increase of 23% since September 2024. The total also marks a 74% increase since September 2023 and a 139% increase since September 2021.

The FAIR Plan’s total exposure was $599 billion as of March 2025, a 74% increase in the last 18 months. A higher exposure means the plan would have to pay out more money in the event of a national disaster that impacts all or many of its policyholders. 

What’s next? An appeal is unlikely and changes are underway

Hilary McLean, a spokesperson for the FAIR Plan, said the plan is unlikely to appeal, though it’s reviewing the ruling.

“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,” she told the Los Angeles Times.

Commissioner Lara’s office said it has also sought to encourage the FAIR Plan to adjust its language surrounding how it handles smoke damage claims. The commissioner’s office stated it sent the FAIR Plan a letter in May requesting that it alter how it reviews and investigates smoke damage claims.

McLean said the plan is in the process of updating its policy language regarding smoke damage claims.

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