In response to ongoing wildfire recovery efforts and litigation over insurer liability for smoke damage claims, Insurance Commissioner Ricardo Lara on March 7 directed insurers to thoroughly investigate all consumer claims related to smoke damage. Bulletin 2025-7 articulates the Commissioner’s position that insurance companies cannot deny smoke-related claims without conducting a proper investigation, reinforcing California’s stringent consumer protection laws.
Wildfires cause extensive damage beyond direct flames, including harm from smoke, soot, and ash. Property insurance policies are intended to cover these losses, but validating smoke damage claims can be complex. Under Lara’s directive, insurers must ensure a comprehensive assessment of claims, including professional testing if necessary. While this strengthens consumer protections, it also places additional compliance and cost burdens on insurers.
The Bulletin comes not only in the wake of the catastrophic wildfires in Los Angeles in January, but also recent court decisions interpreting insurers’ liability for smoke damage claims.
The Commissioner’s decision to expressly mention the FAIR Plan is significant because FAIR Plan policy language is different from standard policy language in requiring “permanent” damage from smoke or other contaminants in order for coverage to be extended. The Plan is facing a class action lawsuit over that requirement, which was quietly written into policy language in 2017.
It is not yet clear how many smoke damage claims will be tendered in the Los Angeles fires, but the FAIR Plan has indicated that about 45 percent of the 4,500 claims it had received in early February were for partial losses; presumably many of those claims could include smoke damage and fine particle contamination.
Concerns over this aspect of FAIR Plan policy language are not new. In January 2021, CDI notified the Plan that its policy language failed to provide “the mandatory minimum coverage required by California law.” CDI then did a market conduct investigation into Plan claims handling and concluded that its approach to smoke damage claims was illegal. CDI claimed the Plan had misled the regulator into approving its policy language and that the Plan had “omitted relevant facts and misrepresented revised language” that made it seem as though it was actually broadening its coverage.
The FAIR Plan strongly disputes those allegations, and maintains that its policy language and claims-handling procedures are fully lawful.