California Appeals Court Limits FAIR Plan to First-Party Property Coverage

The California Court of Appeal ruled that the California FAIR Plan cannot be compelled to include liability coverages within its basic property insurance policies, reversing a previous trial court order. The decision clarified that under the state's Basic Property Insurance Law, the FAIR Plan is mandated only to cover first-party property losses—direct damage to the insured property—and does not extend to third-party liabilities. This ruling resolved a dispute arising from a 2021 order by the California Insurance Commissioner requiring the FAIR Plan to add various liability-related coverages to its policies. The court found this order exceeded the statutory scope intended by the Legislature, which emphasized property protection and market stabilization objectives. The panel scrutinized legislative history and regulatory interpretations and concluded that liability coverages do not fall within the FAIR Plan’s mandate; such protections belong in the voluntary insurance market. The decision maintains the FAIR Plan’s role as a first-party property loss backstop, ensuring that liability and ancillary coverages remain negotiated separately through standard market channels, safeguarding established placement practices for high-risk property risks. Moving forward, any changes to the scope of the FAIR Plan would require legislative action rather than administrative directives, reinforcing the division between first-party property insurance and liability coverage in California's insurance regulatory framework.