California’s appeals court ruled the FAIR Plan cannot be compelled to add liability coverages to basic property insurance, reversing a trial court order.
In a decision filed December 5, 2025, California’s Court of Appeal, Second Appellate District, Division Three, sided with the California FAIR Plan Association over Insurance Commissioner Ricardo Lara. The panel held that the state’s Basic Property Insurance Law mandates only first‑party property coverage – insurance against direct loss to real or tangible personal property at a fixed location – and does not authorize the Commissioner to require liability coverages as part of “basic property insurance.”
The dispute arose from Order No. 2021‑2, which directed the FAIR Plan to submit a homeowners policy including, at minimum, accidental discharge or overflow of water or steam; premises liability; incidental workers’ compensation; theft; falling objects; weight of ice, snow, or sleet; freezing; and loss of use, including additional living expenses and fair rental value. The FAIR Plan petitioned for a writ of mandate, arguing that liability and similar third‑party protections are outside the statute’s scope.
The court acknowledged that the phrase “includes other insurance coverages” in Insurance Code section 10091(c)(1) is ambiguous when read alone. But after examining the law’s wording, purposes, and history, the panel concluded the Legislature intended the FAIR Plan to offer first‑party property protection only. The opinion emphasized section 10090’s goals – stabilizing the property insurance market, assuring availability of basic property insurance, encouraging use of the normal market, and equitably distributing responsibility among admitted insurers – objectives aligned with coverage for direct loss to property, not liability claims.
On how much weight to give the agency’s view, the panel declined to adopt the Department of Insurance’s broader reading. It noted the department’s 1972 report to the Legislature described a narrow, property‑focused mandate, and that later approval of a businessowners policy with premises‑related liability in the 1990s was not contemporaneous with enactment, did not result from formal rulemaking, and conflicted with the earlier position. In short, the agency’s interpretation didn’t carry enough weight to override the statute’s design.
The decision rests on the basic distinction between first‑party property insurance – indemnity for direct physical loss from enumerated perils – and third‑party liability insurance – coverage for losses suffered by others for which the insured may be legally responsible. The court also pointed to section 10091(c)(2)’s reference to earthquake coverage “as a component of basic property insurance” as a clear example of peril‑based, first‑party protection rather than liability.
The judgment is reversed, and the trial court is directed to grant the writ of mandate, invalidating the Commissioner’s 2021 order to the extent it required liability and other non‑first‑party coverages to be added to basic property insurance. Because that holding was dispositive, the court did not reach the FAIR Plan’s other challenges.
For market practice, the takeaway is practical: the FAIR Plan remains a first‑party backstop. Liability and ancillary protections continue to sit in the voluntary market, including through difference‑in‑conditions policies referenced by the Legislature in nonrenewal notices. For carriers, MGAs, and brokers, the ruling preserves established placement strategies for high‑risk property and signals that any broader package concept would look to legislative action rather than an administrative order.
