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Consumer and taxpayer advocacy organization Consumer Watchdog announced Tuesday that it is suing the California Department of Insurance and its commissioner, Ricardo Lara, over what it calls “unjustified surcharges” being levied on the state’s homeowners.
These surcharges, the group said, could soon appear on the insurance bills of homeowners across the state. They stem from a 2024 decision by the commissioner to “allow the insurance companies that comprise and operate the California FAIR Plan, the state’s ‘insurer of last resort,’ to pass-through costs to their policyholders when the FAIR Plan is forced to ‘assess’ those companies for funds after a catastrophe.”
In February, Lara’s office announced an action that aimed to ensure that the FAIR Plan “can continue paying consumer claims after the Southern California wildfires,” with one provision being the “pass-through” at issue.
The policy announced by the commissioner aimed to “[protect] consumers from bearing the full cost of an assessment, with insurance companies responsible for half the assessment under an agreement reached last year,” the office explained.
“Subject to the commissioner’s prior approval under Proposition 103, insurance companies may issue a temporary supplemental fee as a percentage of the policy premium and cannot pass assessment costs on to consumers in future rates.”
This “temporary supplemental fee” is what Consumer Watchdog sees as a pass-through of costs to consumers. The group is aiming to challenge Lara’s authority to levy such fees on California homeowners.
“Because of that decision, homeowners across California are currently on the hook to pay up to $500 million worth of the $1 billion FAIR Plan assessment approved on February 11, 2025 after the Palisades and Eaton Canyon wildfires,” the organization said of its litigation.
“There is no upward limit on the amounts that can be passed-through to homeowners in the future, and the next wildfires could see homeowners responsible for billions more in assessment costs. Consumer Watchdog’s Petition for a Writ of Mandate asks the court to order the Commissioner to not approve any pass-throughs.”
Ryan Mellino, a staff attorney for the organization, called the ability for the commissioner to impose such fees “unjustified on multiple levels.” Instead, insurance companies will be the primary beneficiaries under the plan, he said, and the state’s homeowners and renters will be charged more while the FAIR Plan will not be “depopulated.”
The decision, the group argues, takes aim at a lack of public input on the proposal before its implementation. Consumer Watchdog says it violates the Administrative Procedures Act (APA) on these grounds.
The pass-throughs also violate the statutes which govern the FAIR Plan, the group claims, “which contain no authorization for pass-throughs and require insurance companies to proportionally share in both the profits and losses of the FAIR Plan.”
Already unstable due to increasingly common natural disasters, the insurance industry in California has been reeling following the full loss assessments of the Los Angeles-area wildfires.
In February, Lara rejected State Farm’s request for “emergency” rate increases of 22%, going against the recommendation of his staff experts. Under California Proposition 103, insurers must prove that such increases are necessary and not excessive.
But Lara reversed course in March and said he would approve the rate increases if the insurer provided further supporting evidence. According to reporting by CalMatters, a hearing was held last week and an administrative judge could issue a ruling within the next few weeks.
