Landmark Ruling Exposes Illegal Smoke Damage Denials

In a major legal breakthrough, a Los Angeles judge ruled that the California FAIR Plan’s handling of smoke damage claims violates state law. Homeowners, particularly victims of recent wildfires, have long accused the plan of denying rightful compensation.

Los Angeles County Superior Court Judge Stuart Rice ruled that the plan’s restrictive policy conflicts with California’s Standard Form Fire Insurance Policy. That standard requires full coverage for “loss by fire,” which includes smoke damage.

Smoke Damage Requires Full Coverage Under Law

Since 2017, the FAIR Plan has required smoke-related claims to involve “permanent physical changes.” This made it harder for homeowners to prove damages. The judge stated the plan’s policy language reduced protections that homeowners are legally entitled to.

Rice specifically cited a 2017 notice where the plan warned that the updated policy “will result in the denial of claims” that would have been previously paid. That admission, the judge said, proves the policy violates insurance code requirements.

Homeowners Were Left to Clean Their Own Smoke Damage

Victims of wildfires said they weren’t provided with professional cleaning or lab testing. Instead, they were told to clean their homes themselves—even when fire debris had invaded walls, carpets, and mattresses.

Attorney Dylan Schaffer, representing plaintiff Jay Aliff, said, “This decision clearly says you can’t not pay for these claims.” Aliff’s property was damaged in the 2020 Mountain View Fire, but he received just $2,724 from the plan—far less than the on-site adjuster’s estimate.

Illegal Definitions of Smoke Damage Rejected

The FAIR Plan’s past language claimed smoke damage must be visible to the “unaided human eye” or smellable by the “average person.” This excluded damage detectable only by lab tests. Though the plan dropped that language in June 2024 after another court case, Judge Rice still ruled the prior language illegal.

The ruling also noted that the plan misled regulators in 2016, claiming their new policy might offer broader coverage—when in fact, they limited it.

Widespread Impact Across California Wildfire Zones

The FAIR Plan has grown rapidly as traditional insurers flee California due to wildfire risks. From fewer than 250,000 policyholders in 2021, the plan now covers over 550,000 homes. Areas hit by the Jan. 7 firestorms saw sharp enrollment increases.

Many of these homeowners now find themselves stuck with a plan that gave them low payouts for smoke-related claims—claims that should have been honored under state law.

Insurers Warn of Higher Costs After Ruling

Rex Frazier, president of the Personal Insurance Federation of California, warned that the decision may lead to higher costs. If the plan must provide professional testing before denying claims, it could raise expenses and result in premium hikes.

Despite that concern, FAIR Plan spokesperson Hilary McLean said they are unlikely to appeal. The plan is already updating its policy language to match recent adjustments in claims handling.

Regulators and Advocates Applaud the Decision

California’s Department of Insurance had already begun an investigation into the plan’s treatment of smoke claims. A 2022 market conduct review found 418 violations between 2017 and 2021. These included failure to investigate properly and denial of claims that should have been covered.

“This ruling strongly supports our ongoing efforts,” said Department spokesperson Michael Soller.

Advocates say the court has confirmed what they’ve argued for years. “You have a court of law telling the FAIR Plan what we’ve all been telling them: Your language is illegal,” said Amy Bach, executive director of United Policyholders.

Class Action Denied — But Legal Fight Continues

Although the case did not receive class-action status, attorney Schaffer plans to introduce more evidence before trial. His goal is to secure a statewide injunction forcing the FAIR Plan to fix its smoke damage policy.

The outcome could also impact thousands of past claims, especially those rejected since 2017. New lawsuits continue to emerge after the Jan. 7 fires, many accusing insurers of forcing homeowners onto the FAIR Plan while denying them fair coverage.

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