As the fires raged on in the Pacific Palisades of California, a more specific and sinister plot had been unfolding months prior in preparation for the infernos. In 2023, State Farm, along with other insurers in California, collected premiums before abruptly canceling nearly 2,000 homeowner’s policies across various zip codes.[i] In the summer of 2024, State Farm canceled around 1,600 home insurance plans, leaving thousands without home insurance, scrambling to find an insurer or apply for California’s last resort insurance.[ii]
The Fair Access to Insurance Requirements (“FAIR”) plan is a public entity promoted by California as the last line of defense for those who cannot find home insurance or would not be afforded home insurance by the more mainstream insurers. California’s FAIR plan provides Californians with broader coverage but reduced benefits. Its homepage states that the “FAIR plan provides basic fire insurance coverage for high-risk properties when traditional insurance companies will not.”[iii] What this means for Californians is that regardless of insurance agencies canceling policies or not accepting renewals, most Californians will still have a backstop to at least protect some of their property.
Year after year, the U.S. is plagued with disasters, whether it be monumental hurricanes or raging wildfires, and the Federal Government has attempted to respond accordingly by approving relief funds for the affected areas. For example, in 2024, the Federal Emergency Management Agency (“FEMA”) approved more than 2.1 billion dollars for Florida’s hurricane relief, with little to no political pushback from pundits on either side of the political spectrum. However, it seems that the call for conditions on aid to California has caught traction with some congressmen. Like Warren Davidson (“Congressman Davidson”) from Ohio calling for forest management reform to be included as a condition of the disaster aid.[iv] Perhaps even more bleak is Congressman Davidson’s remark that California should face “consequences” for allegedly mishandling the disaster.[v]
Conditional aid is a tactic that politicians have used in attempts to implement broader changes to a State.
Generally speaking, conditions may be placed on congressional grants of federal monies if those conditions: (1) promote the general welfare; (2) are expressly stated so states unambiguously know the consequences of accepting federal funds; and (3) have some relationship to the purpose of the spending program at issue.[vi]
Historically, conditional aid for disaster relief had not risen to the level of plausibility for it to be of great controversy.[vii]However, with the current stirring political climate, anything may seem more “charged” than it really is. In a letter to then President-Elect Donald Trump, Gavin Newsom (“Governor Newsom”), the current Governor of California, wrote, “In the spirit of this great country, we must not politicize human tragedy or spread disinformation from the sidelines.”[viii] As hundreds of thousands suffer in the Palisades, Governor Newsom is calling for a humanitarian view of the disaster.[ix]
In the wake of the disastrous fires are homes, each with a story of a struggling California resident who was unable to find appropriate coverage. One such person is Matt Knight, an elementary school teacher who, after spending $30,000 in an attempt to comply with insurance requirements, was still only lucky to find insurance with his last choice.[x] And even then, this was after his original insurer refused to renew his plan, leaving his family’s home without protection.[xi]
Other similar and less fortunate stories are prevalent throughout California. There are many people affected by these cancelations, and it goes beyond an insurer simply ending a plan. Many residents have called out the clear intent behind these cancellations as a desire to maximize profits over protecting people’s property.[xii]
One plaintiff, Maria Badin, is suing Liberty Mutual, another prominent insurer in California, for allegedly canceling her home insurance over a “bogus” claim.[xiii] Her complaint asserts that “[d]riven by a desire to maximize profits, property casualty insurance companies, including Defendants, have engaged in a troubling trend of dropping California homeowners’ insurance policies like flies.”[xiv] If insurance companies did not cancel thousands of plans in the Palisades they would be looking at reduced profits because of the insurance payouts that they would legally have to abide by. But by canceling the plans—while simultaneously expecting fires to ravage thousands of homes—these insurance companies avoid the need to payout the insurance proceeds at all. Such actions could be called irredeemable, and many people have pointed out the recent and consistent behaviors of insurance companies that seek to maximize profits first and then actually follow through on their promises.
Now is the time for action in the wake of the flames while many are still reeling from the effects of the raging fires. Residents and politicians should work together to ensure that insurance companies cannot drop thousands of residents from their plans to increase profits. A simple plan has come to the rescue for many people who have yet to lose their homes but nonetheless are in high-risk areas.[xv] Insurance Commissioner Ricardo Lara issued a moratorium on insurance companies, halting them from canceling plans in the affected zip codes for at least one year.[xvi] This will protect many people at risk of losing their insurance but fails to look back to those who have already been devastated. Local municipalities can attempt to pass legislation mandating insurance companies to hold their plans for a set period of time. Otherwise, the California government can legislate a new law forbidding an insurer from dropping a client unless there are other reasonable means by which the client may get new insurance and giving the client enough time to find a new insurer.
Alternatively, the State can reinforce the FAIR Plan and ensure better benefits to residents by using the funding from the massive increase in Californians switching to the FAIR Plan.[xvii] Furthermore, the “irredeemable” conditions that the California fires have illuminated is a need for greater scrutiny of insurance companies and the Federal government’s conditions for disaster relief. The idea of placing conditions on such aid is not something that our Federal Government should make a habit of doing. But rather, when such ideas float around, they must be looked at with great scrutiny. People have unconditionally paid into these systems and deserve to be helped by them just as unconditionally.
[i] See Aimee Picchi, Thousands Of Los Angeles Homeowners Were Dropped by Their Insurers Before the Palisades Fire, CBS News (Jan. 20, 2025), https://www.cbsnews.com/news/fires-california-palisades-fire-homeowners-insurance-state-farm-fair-losses/ (“An analysis of insurance data by CBS News San Francisco last year found that State Farm also dropped more than 2,000 policies in two other Los Angeles ZIP codes, which include the Brentwood, Calabasas, Hidden Hills and Monte Nido neighborhoods.”).
[ii] See id. (“About 1,600 policies in Pacific Palisades were dropped by State Farm in July, California Department of Insurance spokesman Michael Soller said in a[] Thursday email to CBS MoneyWatch.”).
[iii] Cal. FAIR Plan Prop. Ins., https://www.cfpnet.com/ (last visited Jan. 24, 2025).
[iv] See Edward Helmore, Republican Congressman Calls for Halting of Disaster Relief to California, Guardian (Jan. 11, 2025, 12:34 PM), https://www.theguardian.com/us-news/2025/jan/11/warren-davidson-republican-disaster-relief-california-wildfires (“A Republican US congressman from Ohio has called for federal disaster relief to be withheld from California unless the state reforms its forestry management practices that some blame for the rapid spread of wind-fanned fires that broke on Tuesday.”).
[v] See id. (“The congressman said that Congress will ‘need to address fires’ as it had with the previous hurricane damage, ‘but … if they want the money, then there should be consequences where they have to change their policies’ with respect to forestry management.”).
[vi] Justine M. Cannon, Accountability in Reconstruction: The Need for Federal Involvement in Post-Disaster Reconstruction to Protect Housing Interests of Poor and Minority Residents, 47 Santa Clara L. Rev. 93, 99 (2007).
[vii] See id. at 100 (“Ultimately, the Supreme Court has never invalidated conditional federal spending as impermissibly impeding state autonomy.”).
[viii] See Alexei Koseff & Yue S. Yu, Why Newsom Invited Trump to Visit LA Fire Zones Amid Worries He’ll Block Disaster Aid, Cal. Matters (Jan. 10, 2025), https://calmatters.org/environment/wildfires/2025/01/trump-los-angeles-fire-aid-newsom/.
[ix] See id. (“In the spirit of this great country, we must not politicize human tragedy or spread disinformation from the sidelines.”).
[x] See Laurence Darmiento & Summer Lin, First, They Lost Their Home Insurance. Then, L.A. Fires Consumed Their Homes, L.A. Times (Jan. 12, 2025, 3:00 AM), https://www.latimes.com/business/story/2025-01-12/california-homeowners-are-getting-cancelled-by-their-insurers-and-the-reasons-are-dubious.
[xi] See id. (“The trouble started last year, he said, when he received a notice from Safeco Insurance that the policy on his Sonoma Drive home in Altadena, where he lives with his wife and three children, would not be renewed due to a tree overhanging his garage.”).
[xii] See Andrea Chang, Liberty Mutual Declined to Renew This Southern California Homeowner’s Policy. Now She’s Suing, L.A. Times (Jan. 3, 2025, 1:31 PM), https://www.latimes.com/business/story/2025-01-03/liberty-mutual-canceled-this-homeowners-policy-now-shes-suing.
[xiii] See id. (“A Southern California homeowner is suing Liberty Mutual Insurance Co. for declining to renew her longstanding insurance policy, accusing the company of dropping her for bogus reasons.”).
[xiv] See id. (“Driven by a desire to maximize profits, property casualty insurance companies, including Defendants, have engaged in a troubling trend of dropping California homeowners’ insurance policies like flies.”).
[xv] See Chelsea Hylton, California Insurance Commissioner Issues 1-Year Moratorium to Protect LA-Area Homeowners, CBS News (Jan. 10, 2025), https://www.cbsnews.com/losangeles/news/california-insurance-commissioner-moratorium-southern-california-homeowners/ (“His moratorium applies to the zip codes around the Palisades and Eaton fires as well as adjacent areas. It will cover homeowners even if their homes weren’t destroyed or damaged.”).
[xvi] See id. (“The California insurance commissioner issued a mandatory one-year moratorium on non-renewals and cancellations to protect Southern California residents affected by the recent fires.”).
[xvii] See Cal. FAIR Plan Prop. Ins., supra note iii (“Over the past four fiscal years, Dwelling policies have increased by 123% and Commercial policies have increased by 161%. As of September 2024, the total number of FAIR Plan policies has increased 41% since September 2023.”).
