By Ethan Varian, MERCURY NEWS

July 13, 2022

California’s ‘insurer of last resort’ accused of wrongly denying wildfire claims

After the CZU Lightning Complex Fires ripped through the Santa Cruz Mountains in 2020, Sarah Mapel’s home was one of the few in her Boulder Creek neighborhood left standing. But after returning to the three-bedroom house built out of old-growth redwood, Mapel found wildfire smoke had inundated the interior and ruined most of her belongings.

“I got back to my home after the evacuation order was lifted and it was just rancid from the smoke inside,” Mapel said. “You could just see the particulate in the air, and everything was covered in ash and soot. It smelled awful, like nauseating.”

When Mapel tried to file an insurance claim through her insurance provider – the California FAIR Plan – she said her policy wouldn’t cover it because there was no “physical change” to her home. She said the total cost of damage and expenses came to over $200,000.

“They sent me a check for $1,100 to buy some HEPA filters and told me to Swiffer my house,” Mapel said.

Now, policyholders, consumer advocates and public officials are accusing California’s “insurer of last resort” of violating state law and failing to provide adequate coverage for homeowners across the state.

On Wednesday, the California Department of Insurance held a public “investigatory” hearing in Oakland to gather comments about the plan and “explore solutions” for how to revamp the California FAIR Plan. The program offers coverage to homeowners and business owners who are unable to buy traditional policies because they’re in high fire-risk areas. The hearing came in the wake of two reports released last month that highlighted serious concerns.

“I’ve heard from business owners and homeowners alike in wildfire-affected areas that need to purchase FAIR Plan policies and yet cannot get the FAIR Plan to even answer their calls,” said Insurance Commissioner Ricardo Lara at the meeting.

The plan is an insurance pool established and regulated by the state, but funded and managed by individual private insurers. As the climate crisis has fueled a string of catastrophic wildfire seasons in recent years, traditional insurers discontinued coverage in areas across the state and the number of homeowners forced to buy FAIR Plan polices has doubled to more than 248,000 policyholders between 2018 and 2022, according to the Department of Insurance.

As the program has grown, the department has increased scrutiny of the FAIR Plan and enacted some new regulations of its coverage.

In one report released last month, the state found the program had illegally denied or reduced coverage for smoke damage, failed to thoroughly investigate claims and misled homeowners about the details of their policies, among other allegations.

Another report raised transparency and accountability problems while outlining a laundry list of recommendations, including steps to improve the process for handling claims, hire additional staff and resolve financial issues – including an initially misreported $332 million deficit for last year.

At Wednesday’s hearing, public officials, advocates, insurance brokers and policyholders reiterated many of the same problems and asked the department to find ways to help bring down insurance premiums.

“Families across our state are already struggling under the exorbitant cost of housing,” said Wendy Thomas, a county supervisor in El Dorado County, which was devastated by the Caldor Fire last year. “And seniors on fixed incomes are finding it nearly impossible to have adequate insurance that they can actually afford. The alternative is to underinsure your property and pray you never use it.”

During the hearing, FAIR Plan officials declined to discuss “specific policy or claims questions or concerns,” citing ongoing legal action brought by some policyholders. Instead, they focused much of their presentation warning about the potential consequences of forcing the FAIR Plan to significantly expand coverage or lower rates.

“The California FAIR Plan must have actuarially sound rates to avoid an indirect tax to all consumers, said FAIR Plan President Victoria Roach.

Consumer advocates say the FAIR Plan continues to deny fire smoke claims, despite the Department of Insurance demanding the program start covering smoke damage in a January 2021 letter to then-FAIR Plan President Anneliese Jivan.

“The fact that the agency hasn’t protected people and hasn’t caught these things, it’s an unconscionable betrayal that has to be rectified by the commissioner right away,” said Harvey Rosenfield, founder of the advocacy group Consumer Watchdog.

Department of Insurance officials say they are continuing to work with the program to change the policy. They noted that 20 private insurers “deleted illegal smoke policy provisions” in 2018 after being notified by the agency, adding the department’s oversight led to $166 million being returned to consumers last year.

Mapel, the homeowner in Boulder Creek, eventually sold her house after months struggling and failing to get reimbursed. She now subleases a friend’s apartment in San Francisco.

“The last moments I had in the home were full of so much trauma and anxiety – I just felt the thing I needed to do for myself was to sell it and move forward,” said Mapel who has filed a lawsuit against the FAIR Plan. “I’m just one of so many, and me telling this makes a difference. I just hope I can make it better for other people at least.”