A Los Angeles Superior Court judge has ruled that a lawsuit challenging the California Department of Insurance’s approval of a $1 bn assessment on insurers—used to fund the state’s FAIR Plan—can proceed on one key legal claim.
The ruling keeps alive a challenge over whether insurers can shift those costs to policyholders.
Consumer Watchdog, the group behind the suit, called the decision a “significant procedural victory,” arguing it ensures full legal scrutiny of Insurance Commissioner Ricardo Lara’s approach, which it claims could transfer hundreds of millions of dollars in wildfire-related costs from insurers to homeowners.
Ricardo Lara has approved an 8.7% increase in advisory pure premium rates for workers’ compensation policies renewing on or after September 1
The judge confirmed that the legality of these pass-through charges raises serious questions and must be heard.
William Pletcher, Director of Litigation at Consumer Watchdog
Commissioner Lara responded by defending his actions under Proposition 103, saying the court affirmed his authority to manage insurance market volatility through the Sustainable Insurance Strategy. He dismissed the lawsuit as a political tactic that distracts from the broader crisis affecting access to coverage.
The suit stems from a $1 bn assessment authorized by CDI in January to keep the FAIR Plan solvent after catastrophic wildfires. Insurers that participate in the FAIR Plan were required to pay into the pool, and several passed those costs onto policyholders.
Consumer Watchdog’s complaint does nothing to solve California’s insurance crisis. The court saw through their effort to undermine progress on stabilizing the market.
Insurance Commissioner Ricardo Lara
Consumer Watchdog argues that the law forbids insurers from recovering FAIR Plan losses from consumers, especially while maintaining profit margins.
To stabilize the market and reduce the FAIR Plan’s long-term exposure, the Insurance Commissioner has enacted several policy changes.
These include mandatory underwriting participation from private carriers in wildfire-exposed areas and new eligibility rules for large commercial and multi-unit residential properties. Temporary expansions in coverage limits are scheduled to remain in place through 2028.
The Department of Insurance also introduced mandatory transparency rules. These require the FAIR Plan to publicly disclose board composition, financial performance, and claims handling metrics. A separate audit process is underway to review claims procedures, with a focus on fire and smoke damage cases.
Attorney Ryan Mellino, who argued the case, said the commissioner’s approval of such pass-throughs represents “a betrayal of the very people he’s supposed to protect.”
This fight is far from over. We’ll show in court that the commissioner’s plan isn’t just bad policy—it violates state law.
Attorney Ryan Mellino
While the court dismissed two procedural claims, it allowed the core legal question to move forward.
Both sides are now preparing for a broader legal fight over who ultimately bears the cost of California’s growing climate-related insurance burden.
The California FAIR Plan, established as an insurer of last resort, has become a central feature of the state’s residential property insurance landscape.
Designed to offer basic fire coverage to property owners unable to secure insurance in the private market, the FAIR Plan now covers over half a million properties across California.
In 2025, the FAIR Plan operates under growing pressure due to sharp increases in wildfire exposure, a shrinking private market, and increased scrutiny from both regulators and the courts. Its growth rate has outpaced all other insurers in the state, making it the sixth-largest home insurer by policy count.
The FAIR Plan’s risk exposure has expanded rapidly, with total liability now in the tens of billions. Following the major wildfires earlier this year, the Plan approved a $1 bn assessment on all member insurers to maintain liquidity and meet claims obligations.
The financial structure requires both insurers and policyholders to contribute, with up to 50% of assessment costs passed through to consumers as temporary fees.
Reinsurance layers exist, but the Plan must first absorb a significant threshold in losses before such coverage becomes available. As a result, the Plan’s cash position has remained fragile relative to its claims burden.
