Because of the potential exposure associated with wildfires, many insurers have attempted to withdraw from the property coverage market in various states. In this post in the Blog’s Wildfire Insurance Coverage Series, we discuss the challenges businesses and individuals face in obtaining wildfire insurance coverage, and the regulatory scheme that is intended to help them secure adequate coverage.
Given the increasing exposures associated with climate change, numerous insurers have sought to withdraw from the wildfire-related coverage market or increase rates to a level where they are effectively unavailable. States have been resistant to their doing so. As one commentator reports, “[e]ven where insurers have tried to withdraw policies or raise rates to reduce climate-related liabilities, state regulators have forced them to provide affordable coverage anyway, simply subsidizing the cost of underwriting such a risk policy or, in some cases, offering it themselves.” At least 30 states have developed regulation, referred to as “Fair Access to Insurance Requirements” (FAIR), to ensure the continued availability of insurance. The FAIR plan provides a channel to insurance for property owners who would be stuck without any reasonable access to insurance without state intervention.
For example, the California legislature created the California version of the FAIR Plan in 1968 to provide homeowners in high risk areas access to basic property insurance. The basic policy is limited to damage to the dwelling and its contents from fire with limited coverage for smoke and it provides no benefits to third parties; broader coverage is available for a price. Until 2019, homeowners were forced to purchase an expensive and inconvenient “difference in conditions” coverage on top of their limited FAIR Plan policy if they wanted coverage similar to what is covered in a typical homeowners insurance policy. However, in 2021, a California trial court upheld the California Insurance Commissioner’s 2019 order mandating that the FAIR Plan offer more comprehensive coverage.
Challenges to obtaining fire insurance coverage are not unique to homeowners—agricultural businesses, including wineries, ranchers and farm owners in high risk areas have all faced similar problems in gaining access to affordable insurance. These kinds of businesses may be particularly susceptible given they are located in more rural areas that are especially vulnerable to wildfires. Until recently, these businesses were left without a lifeline because they were excluded under the California Insurance Code from benefiting from the FAIR Plan. To resolve this problem, California recently approved legislation to ensure that the FAIR Plan also provides commercial coverage for these outdoor businesses.
* * *
This is the sixth post in the Blog’s Wildfire Insurance Coverage Series.
*This post is an excerpt from an article written by Scott DeVries and Yosef Itkin that originally appeared in the Journal on Emerging Issues in Litigation published by Fastcase Full Court Press, Volume 2, Number 3 (Summer 2022), pp. 213-222 (a comprehensive list of all references is provided in the published journal version).
 Wexler v. California Fair Plan Ass’n., 63 Cal.App.5th 55, 58 (2021) (Woolsey Wildfire).