Appellate Update – December 2025

December 2025

The following published decision may be of interest to attorneys practicing insurance law:

CALIFORNIA COURT OF APPEAL

The Insurance Commissioner lacks authority to mandate that the California FAIR Plan offer liability coverage. California FAIR Plan Association v. Lara (2025) __ Cal.App.5th __.

The California Insurance Commissioner issued an order directing the FAIR Plan to offer a homeowner’s policy covering perils not covered by the standard fire policy, including premises liability and workers’ compensation.  The FAIR Plan challenged the order, arguing that the order violated California’s Basic Property Insurance Law (Ins. Code, §§ 10090–10100.2), which limits the scope of coverages the FAIR Plan must provide to “basic property insurance.”  Under the statute, “basic property insurance” is defined as “insurance against direct loss to real or tangible personal property at a fixed location in those geographic or urban areas, as designated by the commissioner, from perils insured under the standard fire policy and extended coverage endorsement, from vandalism and malicious mischief, and includes other insurance coverages as may be added with respect to that property . . . .”  The FAIR Plan argued that liability coverage is not “insurance against direct loss to real or tangible property.” The Commissioner argued that his authority extended to premises liability claims because the definition goes on to include a “catchall” provision for “other insurance coverages as may be added with respect to the property” and premises liability claims arise from use of the property.  The trial court concluded the statute was ambiguous and deferred to the Commissioner’s interpretation.

The Court of Appeal (Second Dist., Div. Three) reversed. Although the statutory text of section 10091, subdivision (c)(1) is ambiguous insofar as it purports to allow “other insurance coverages,” and not just insurance for perils causing property loss, the only reasonable interpretation is that the law is limited to first party property insurance.  First, the law was passed in response to urban riots and brush fires that threatened to destabilize the property insurance market.  Second, the law expressly states its purposes as being to assure property insurance market stability, to ensure availability of basic property insurance, to encourage use of the normal insurance market, and to “equitably distribute responsibility among property insurers.” (Ins. Code, § 10090).  The Department of Insurance’s interpretation of the statute was “decidedly at odds” with the stated goal of the law—recognized in the Department’s own correspondence from the time the law was passed—to be “a residual market mechanism for insuring property risks.”  The Department was not entitled to deference in interpreting the statute.

This e-Bulletin was prepared by Emily V. Cuatto, Certified Appellate Specialist and Partner of Horvitz & Levy LLP. Ms. Cuatto is a member of the Insurance Law Standing Committee of the Business Law Section of the California Lawyers Association.