Consumer Watchdog has sued Insurance Commissioner Ricardo Lara and the California Department of Insurance to challenge hundreds of millions of dollars in unlawful surcharges from being imposed on California homeowners.
The complaint filed by Consumer Watchdog, a self-described consumer research and advocacy organization, alleges Commissioner Lara violated the California Administrative Procedure Act (APA) and the statutes governing the California FAIR Plan by issuing two bulletins (Bulletin 2024-8 and Bulletin 2025-4). These bulletins allegedly authorize insurers to shift the cost of FAIR Plan assessments onto policyholders, which Consumer Watchdog describes as “a fundamental change” to the statutory framework. Consumer Watchdog argues that this change was implemented without following the required legal procedures, including public notice and legislative approval, and constitutes an unlawful surcharge on policyholders. The petition seeks to enforce compliance with the APA and FAIR Plan statutes to protect California consumers from these unauthorized financial burdens.
Bulletin 2024-8, issued by Commissioner Lara on September 3, 2024, is titled “Insurer Recoupment Procedures in the Highly Unlikely Event of Assessment by the FAIR Plan.” The bulletin outlines the procedures through which FAIR Plan member insurers can request approval to recoup assessment costs from their policyholders. The bulletin specifies three scenarios under which insurers may seek to impose temporary supplemental fees on policyholders to recover up to 50% or 100% of assessment costs, depending on the amount assessed and the type of policy.
Bulletin 2025-4, issued one month after the Eaton and Palisades fires (collectively, the LA Fires) on February 11, 2025, provides updated guidance on the “Insurer Recoupment Procedures” for FAIR Plan member insurers. This bulletin was issued in response to the $1 billion assessment levied by the FAIR Plan following the LA Fires. It details the documentation and procedural requirements for insurers to request approval to collect temporary supplemental fees, including the need to demonstrate that assessment payments were not covered by reinsurance or reimbursed through other means.
Consumer Watchdog’s first cause of action against Commissioner Lara alleges that Bulletins 2024-8 and 2025-4 are invalid because they were not promulgated in accordance with the APA. The APA requires that regulations be adopted through a formal rulemaking process, including public notice, opportunity for comment and review by the Office of Administrative Law. The complaint alleges the bulletins qualify as regulations under the APA and were issued without following these procedures, rendering them void and without legal effect. Consumer Watchdog seeks a judicial declaration of the bulletins’ invalidity and an injunction to prevent their enforcement.
The second cause of action contends that the bulletins exceed the authority granted to the insurance commissioner by the FAIR Plan statutes. According to Consumer Watchdog, the FAIR Plan statutes do not authorize the commissioner to allow insurers to pass assessment costs onto policyholders. By issuing the bulletins, the second cause of action alleges the commissioner has improperly amended and enlarged the scope of the statutes, which is beyond his statutory authority. Consumer Watchdog seeks a writ of mandate to compel the commissioner to comply with the FAIR Plan statutes and a declaration that the bulletins are unauthorized and invalid.
The third cause of action argues that the bulletins violate the statutory requirement that FAIR Plan member insurers proportionally share in the plan’s profits and losses. According to the complaint, by allowing insurers to pass assessment costs onto policyholders, the bulletins disrupt the statutory balance and create an inequitable situation where insurers can offload losses while retaining profits. This violates the proportional sharing requirement of the FAIR Plan statutes. Consumer Watchdog seeks a writ of mandate to enforce the statutory requirement and a declaration that the bulletins are invalid for violating this requirement.
Consumer Watchdog seeks multiple forms of relief. It requests a peremptory writ of mandate to prevent the implementation or enforcement of Bulletins 2024-8 and 2025-4. The petition also seeks judicial declarations that these bulletins are invalid “underground regulations” issued without compliance with the APA and that they exceed the statutory authority granted by the FAIR Plan statutes. Additionally, Consumer Watchdog asks for injunctive relief to prohibit the enforcement of the bulletins and a mandatory injunction to facilitate the return of any unlawfully collected assessment costs, with interest, from insurers back to policyholders. The petition further requests an award for the costs of the suit, including attorneys’ fees, and any other relief the court deems just and proper.
Both Consumer Watchdog and the California Department of Insurance assert that they are protecting consumers, while accusing the other of hurting consumers. Gabriel Sanchez, a spokesperson for the California Department of Insurance, criticized the lawsuit in an interview with The Associated Press in which he stated that the legal action “hurts homeowners, small business and nonprofits who need access to insurance options, while doing nothing to address the insurance crisis.” He further stated that the lawsuit “also serves to undermine [the Department’s] efforts to restore competition to all areas of our state, so people can get off the FAIR Plan and back to the regular market.”
California homeowners should keep an eye on the legal and regulatory developments surrounding the FAIR Plan and the insurance market in California. This lawsuit filed by Consumer Watchdog against the insurance commissioner and the California Department of Insurance could have significant implications for policyholders. If the court rules in favor of Consumer Watchdog, it could block the implementation of the surcharges and require insurers to refund any unlawfully collected fees. Additionally, the outcome of this case could influence future regulatory actions and the overall stability of the insurance market in the state. We will continue to monitor the lawsuit.
Client Alert 2025-111
