In St. Cyr v. California FAIR Plan Association, the California Court of Appeal (Second Appellate Court) dismissed a lawsuit against the California FAIR Plan, which was filed by FAIR Plan policyholders who were paid the policy limits stated in their policies.
The plaintiffs in the case were property owners who were insured by the FAIR Plan. The FAIR Plan paid the plaintiffs the policy limits set forth in their policies within weeks of their losses. The plaintiffs contended that the FAIR Plan’s payments failed to comply with the terms of their policies and statutory requirements. The plaintiffs sued the FAIR Plan for breach of contract and bad faith.
The trial court determined that the plaintiffs did not state a valid cause of action and dismissed the lawsuit.
On appeal, the plaintiffs put forward three arguments. First, the FAIR Plan breached its duty to write a policy on a form approved by the insurance commissioner. Second, the FAIR Plan’s policy failed to comply with the standard form fire policy in Insurance Code Section 2071. Third, the FAIR Plan failed to pay actual cash value (ACV) which is required by Section 2071’s standard form fire policy.
The Court of Appeal’s January 31, 2014 decision rejected each of the plaintiffs’ arguments and affirmed the trial court’s dismissal of the lawsuit.
The Department of Insurance’s rate filing instructions only require approval of policy forms that have a rate impact. The FAIR Plan submitted policy forms to the insurance commissioner as part of its 1997 rate filing. The policy forms issued to the plaintiffs included changes from the forms in the 1997 rate filing. Those changes did not necessitate a new approval by the commissioner because the commissioner advised the court that “there is no information presented to show that any changes to the forms resulted in a change to their rate impact.”
The plaintiffs argued that the FAIR Plan violated Insurance Code provisions which require it to use the line-numbered statutory form set forth in Insurance Code Section 2071. The Court of Appeal countered that the FAIR Plan’s policy form did not need to “comply with the provisions of the standard form of fire insurance policy set forth in Section 2071, so long as it provides coverage substantially equivalent, or more favorable, to the insured. Thus, [the FAIR Plan] was not statutorily required to use the line-numbered statutory form set forth in Section 2071.”
The plaintiffs contended that the Fair Plan’s payment of policy limits was at odds with provisions in Section 2071’s standard form which require an insurer to pay ACV. The Court of Appeal pointed out that the plain language of the standard form fire policy limits an insurer’s payment obligation to an amount not exceeding the dollar amount stated in the insurer’s policy. The court ruled that the FAIR Plan paid the plaintiffs their full policy limits and “was required to do no more under the standard form fire policy. Contrary to [plaintiffs’] contention, they were not entitled to the ACV of the dwelling and other real and tangible property without regard to policy limits. They were entitled to such compensation only ‘to an amount not exceeding’ the limits of their policies.”
A copy of the Court of Appeal’s opinion is available at www.courts.ca.gov