Consumer Watchdog sues California’s insurance regulator over FAIR Plan surcharges

By Michael Loney

April 16 - (The Insurer) - Consumer Watchdog has sued the California Department of Insurance to block insurers from passing assessment costs from the state’s FAIR Plan onto consumers, in a lawsuit the American Property Casualty Insurance Association calls a “reckless and self-serving stunt."

The consumer advocacy group said it filed a petition in Los Angeles Superior Court against the CDI and California Insurance Commissioner Ricardo Lara to protect California homeowners from hundreds of millions in surcharges that could soon appear on their insurance bills.

Consumer Watchdog said that 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 to pass-through costs to their policyholders when the plan is forced to assess those companies for funds after a catastrophe.

According to the lawsuit, California homeowners are currently on the hook to pay up to $500 million worth of the $1 billion FAIR Plan assessment approved in February after the Palisades and Eaton Canyon wildfires.

"The Commissioner's decision to allow pass-throughs is unjustified on multiple levels" said Consumer Watchdog staff attorney Ryan Mellino in a statement. "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.”

Insurance trade group APCIA responded that it is critical that recovery 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.

“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,” said Denni Ritter, APCIA department vice president of state government relations, in a statement.

Ritter added that blocking recovery of the costs insurers have paid to safeguard the FAIR Plan would jeopardize the last-resort coverage option for homeowners, “and push our fragile insurance market closer to total collapse.”

“Insurers have already paid tens of billions in claims and contributed more than $500 million to support the FAIR Plan’s solvency — even though they do not collect premiums from FAIR Plan policyholders,” Ritter said.

Consumer Watchdog is challenging the pass-throughs on multiple grounds, including that the decision was reached without any public input or participation, and that the pass-throughs directly violate the FAIR Plan statutes.

Consumer Watchdog last week also argued at a hearing before the CDI that State Farm's emergency request for an interim increase in homeowners insurance rates should be rejected.