Tax Information for Those Impacted by the Los Angeles County Wildfires
As a Los Angeles-based firm, we are deeply saddened by the devastation caused by the recent wildfires. We remain committed to supporting our clients and friends during this time and are hopeful that the general tax information outlined below may be helpful as those affected by the wildfires begin to consider plans to recover and rebuild.
On January 10, the IRS announced tax relief for individuals and businesses affected by the Los Angeles County wildfires, following the disaster declaration issued by FEMA. The governor announced relief related to California state taxes on January 11, and on January 14, 2025, it was announced that eligible property owners may qualify for property tax relief in Los Angeles County.
Extensions
The IRS and the California Franchise Tax Board (FTB) extended certain filing and payment deadlines falling on or after January 7, 2025 and before October 15, 2025, to October 15, 2025. For individuals and businesses with an IRS address of record located in Los Angeles County, the IRS will automatically provide relief. If a taxpayer resides outside of Los Angeles County but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area (for example, non-resident partners of Los Angeles partnerships), that taxpayer will need to contact the IRS disaster hotline at 866-562-5227 to request the extension.
The October 15, 2025 deadline applies to:
Individual income tax returns and payments normally due on April 15, 2025 (federal and state).
2024 contributions to IRAs and HSAs (and note, additional relief might be available in the form of special disaster distributions or hardship withdrawals; each plan or IRA has specific rules).
Quarterly payroll and excise tax returns normally due on Jan. 31, April 30, and July 31, 2025.
Calendar-year partnership and S corporation returns normally due on March 17, 2025 (federal) and PTE tax returns and elective tax payments normally due on March 15 and June 15, 2025 (state).
Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2025 (federal and state).
Calendar-year tax-exempt organization returns normally due on May 15, 2025 (federal and state).
A 2024 estimated tax payment normally due on Jan. 15, 2025, and estimated tax payments normally due on April 15, June 16, and Sept. 15, 2025 (federal and state).
Certain other time-sensitive actions, including those related to Section 1031 exchanges, as discussed below.
Note that while an extension will prevent penalties as long as taxes are paid before the October 15 deadline, the extension does not prevent interest from accruing.
The IRS and the FTB also have provided affected taxpayers until Oct. 15, 2025, to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2018-58, including specific relief pertaining to like-kind exchanges of property (including for taxpayers who are not otherwise “affected taxpayers” under the general relief rule).
Finally, the California Department of Tax and Fee Administration (CDTFA) has granted a three-month extension on the ability to file and pay taxes or fees for various CDTFA-administered programs, including sales and use tax returns for certain taxpayers, as well as various programs related to natural resources.
Casualty Losses
Affected taxpayers will be able to claim fire-related casualty losses on their federal income tax return on either their current or prior year tax returns (i.e., a taxpayer can elect to treat the loss as offsetting its 2024 income). A casualty loss is typically limited to a tax basis, rather than fair market value, but taxpayers should carefully consider whether a casualty loss deduction makes sense for them, because it cannot be claimed if tax basis is expected to be reimbursed (e.g., through insurance or litigation proceeds). If any portion of a casualty loss deduction is reimbursed, a portion of the reimbursement will be treated as ordinary income (and not eligible for deferral).
For California state tax purposes, taxpayers can only take a casualty loss to the extent it exceeds 10% of adjusted gross income. It is unclear at this time whether a federal law signed at the end of last year will apply to these wildfires, eliminating this 10% adjusted gross income requirement for federal tax purposes.
For property tax purposes, taxpayers may be entitled to both a deferral of payment and monetary relief for property taxes already paid and future property taxes as a result of property being damaged or destroyed. The relevant forms are available on the Los Angeles County website under “Misfortune or Calamity,” linked here for convenience.
Insurance Proceeds and Casualty Gain
Certain insurance proceeds resulting from federally declared disasters (such as certain proceeds for temporary living expenses or personal property, in either case, resulting from a loss of principal residence) can be received tax-free. However, other insurance proceeds may be treated as sales proceeds, resulting first in a reduction in basis of one’s property and beyond that, taxable gain (a “casualty gain”). For the loss of a principal residence, to the extent a taxpayer has casualty gain, up to $250,000 for single taxpayers and $500,000 for married taxpayers can be excluded from income.
Tax-Deferred Exchanges
Taxpayers, including businesses, may be able to defer gain under Section 1031, Section 1033 or possibly both.
Section 1033 allows tax deferral when a taxpayer’s property has been involuntarily converted, including in circumstances involving a federally declared disaster. An election under Section 1033 can allow indefinite deferral on casualty gain. However, the rules relating to involuntary conversions, including the deadlines, can be complex. For example, for a principal residence, the casualty gain must be reinvested within 4 years of the first year in which casualty gain was realized. In many circumstances, a taxpayer can receive insurance proceeds and sell underlying land and use all of the proceeds as part of a Section 1033 exchange.
In certain circumstances, taxpayers may determine utilizing Section 1031 makes more sense, which allows for similar tax deferral. Generally speaking, Section 1031 is more limited as it is only available to taxpayers that hold their real property for use in a trade or business or for investment, and proceeds received as part of a Section 1031 exchange must be reinvested within six months.
Property Tax Relief
For any taxpayer that has had their property destroyed or damaged and decides to rebuild, the rebuilding will not cause an additional “new construction” assessment provided that the property after reconstruction is “substantially equivalent” to the property prior to the damage or destruction. Any reconstruction of real property, or portion thereof, that is not substantially equivalent to the damaged or destroyed property, shall be deemed new construction and only that portion that exceeds substantially equivalent reconstruction shall be newly assessed.
Similarly, any taxpayer that has had their property substantially damaged or destroyed by the fire may transfer their base-year value to a comparable property within the same county, which comparable new property must be acquired or newly constructed within five years after the disaster. Replacement property is comparable to the property damaged or destroyed if it is similar in size, utility, and function to the property which it replaces. As long as the replacement property is not worth more than 120 percent of the value of the damaged or destroyed property (immediately prior to the disaster), the base value will transfer with no adjustments. If the replacement property costs more than 120 percent of the value of the damaged or destroyed property, then the excess will be added to the base-year value.
For taxpayers who had their principal residence damaged or destroyed by the wildfire, they may transfer their base-year value to a replacement dwelling anywhere in California that is purchased or newly constructed by that person as their principal residence within two years of the sale of the original property.
Insurance in the Know (Part 3): Recoupment of Defense Costs Is Not a “Right” in a Standard CGL Policy
The foundation of a policyholder’s agreement to pay premiums for a standard commercial general liability policy (CGL) is the insurer’s agreement to defend the policyholder against lawsuits and shoulder the costs of the defense. The insurer has “the right and duty to defend any ‘suit’” containing any allegation that potentially falls within the policy’s coverage. In other words, the insurer has agreed to defend the entire suit, even if it also includes non-covered claims. But along with that duty, the insurer has the valuable right to control the defense and use its resources to combat a finding of liability against the policyholder that would trigger its duty to indemnify. (Note that an insurer may have a conflict of interest in a “mixed action” alleging both covered and non-covered claims, requiring the insurer to pay for the policyholder’s choice of independent counsel, which we’ve covered previously.)
What a standard CGL does not give the insurer the right to do is seek recoupment of defense costs. Period. Yet insurers often attempt to do just that if it is later determined (usually through a declaratory judgment action) that none of the claims in the suit was covered.
Reserving a Non-Existent Right Doesn’t Make It So
In a mixed action or when potential coverage is doubtful, the insurer is obligated to reserve the right to later deny coverage and explain the reservation to the policyholder. These so-called reservation-of-rights letters may also include the insurer’s assertion of a “right” to seek reimbursement of defense costs for claims ultimately determined to be non-covered, including those claims with the potential for coverage that triggered the defense duty in the first place.
Despite the absence of any such right in the wording of the insurance contract and lack of additional consideration, some courts, most notably in California, have upheld a right of recoupment based on the equitable doctrines of implied-in-fact contract and unjust enrichment. Their theory is that the policyholder (1) could have objected to recoupment and instead impliedly consented to that condition by accepting the defense, or (2) was unjustly enriched because it ultimately turned out the insurer had no defense duty.
These rationales turn the insurer’s broad duty to defend on its head, permitting insurers to retroactively narrow the CGL’s principal benefit to policyholders. The result is certainly not equitable given that insurers could readily resolve the issue by amending policy wording to specifically enshrine a right to recoupment. Fortunately, the number of courts rejecting insurers’ recoupment arguments now predominates, perhaps in part due to the American Law Institute’s position in the Restatement of the Law of Liability Insurance that recoupment is unavailable absent an express right in the policy itself.
When a CGL insurer elects to defend a claim subject to a reservation of rights, policyholders should challenge unwarranted assertions of a right to recoup defense costs as nothing more than a unilateral attempt to diminish the very benefit the insurer agreed to provide.
Read Part One and Part Two.
Run the Campaign, Protect the Risk: Your Insurance Playbook
With the dust still settling from the most expensive political campaigns in history, many politicians are already eyeing re-election bids, while newcomers are gearing up to enter the race for the first time in the midterms or beyond.
In a landscape where presidential and congressional candidates spent nearly $14 billion during the 2020 election cycle, and projections for 2024 suggest total spending exceeded $16 billion, modern political campaigns and their operations are more complex—and risky—than ever before. From campaign staff facing the potential for bodily injury on the trail to cybercriminals targeting sensitive donor information, the range of exposures is constantly growing. It is crucial for campaigns to secure the right insurance coverage to mitigate these evolving risks.
This post explores the key types of insurance coverage political campaigns should consider, as well as strategies to ensure maximum recovery should a loss occur.
Insurance Coverage Options
General liability (GL) insurance protects the campaign against third-party claims and lawsuits. For example, if a campaign staffer, volunteer, or attendee is injured at an event and seeks compensation for their injuries, GL insurance can help cover those costs. Additionally, some GL policies include liquor liability coverage, which protects the campaign during fundraising or other events where alcohol is served.
Property insurance safeguards the physical assets used by a campaign, including office buildings and their contents, such as furniture. It also covers computers, technological equipment, and campaign materials like posters and signs. Additionally, property insurance protects a campaign’s financial and accounting records.
Commercial auto insurance covers accidents involving a campaign-owned vehicle, including bodily injury and medical expenses for the driver, as well as property damage to the vehicle.
Non-owned and hired auto insurance protects against damages to vehicles used for campaign operations but not owned by the campaign, such as rented, leased, or staff-owned vehicles.
Crime / employee theft insurance covers losses from fraud, embezzlement, robbery, forgery, and other dishonest acts by campaign employees, including expenses associated with a data breach or computer fraud.
Directors and officers (D&O) insurance provides financial protection for campaign directors, officers, managers, and other employees against lawsuits related to alleged mismanagement or errors in campaign operations.
Media liability insurance protects the campaign from defamation, plagiarism, or copyright infringement claims resulting ads or public statements by campaign spokespeople.
Cyber insurance covers costs related to cyber attacks and data breaches. This type of coverage is essential for campaigns storing sensitive donor information. Some cyber policies provide limited media liability coverage as well.
Employment practices liability (EPL) insurance covers legal costs, settlements, and judgments for claims related to actual or alleged employee rights violations such discrimination, wrongful termination, and harassment.
Workers’ compensation coverage is required for campaigns with paid employees, and covers claims related to workplace injuries.
Event cancellation insurance protects against costs incurred if a campaign is canceled, postponed, or relocated for reasons beyond the campaign’s control.
Special events insurance covers specific campaigns events like rallies and conventions.
Bundled insurance packages combine multiple coverages to address key risks associated with modern political campaigns, streamlining protection for a variety of potential exposures.
Steps to Secure Coverage
If a loss occurs, campaign managers must be aware that they may need to file a claim to recover losses and additional costs. To secure coverage, campaigns are well-advised to:
Review all relevant insurance policies to identify applicable coverages;
Notify insurers of the potential insurance claim as soon as possible; and
Maintain thorough, up-to-date records—including accounting records, contemporaneous photos, and videos—detailing damages, costs, and losses, along with any extra expenses.
Takeaways
How insurance responds to the evolving risks of modern political campaigns depends on the structure of the campaign’s insurance program and the specific terms, conditions, and exclusions in each policy. It is imperative for campaigns to carefully review all policy terms—both at the time of purchase and when filing a claim. To ensure comprehensive protection and maximize recovery potential, campaigns should consider consulting with insurance coverage counsel for expert guidance.
May the Coverage Be With You: Navigating CMS’s Changes to the Health Insurance Marketplace
The Department of Health and Human Services (“HHS”) Centers for Medicare & Medicaid Services (“CMS”) recently issued the final “HHS Notice of Benefit and Payment Parameters for 2026” (hereinafter referred to as the “Rule”) setting new and updated standards for Health Insurance Marketplaces and health insurance issuers, brokers, and agents who help connect millions of consumers to health insurance coverage. Effective January 15, 2025,[1] the Rule finalizes additional safeguards for marketplace coverage beginning plan year 2026, protecting consumers from unauthorized changes to their health care coverage, ensuring the integrity of the federally facilitated Marketplaces, and making it easier for consumers to understand their costs and enroll in coverage through HealthCare.gov. The changes in this Rule aim to minimize administrative burden, ensure program integrity, advance health equity, and mitigate health disparities.
Preventing Unauthorized Marketplace Activity Among Agents and Brokers
This Rule expands CMS’s authority to immediately suspend an agent or broker’s ability to transact information with the Marketplace if there is an unacceptable risk to the accuracy of Marketplace eligibility determinations, operations, applicants, enrollees, or Marketplace information technology systems. CMS aims to protect consumers and support the integrity of the Exchange by increasing transparency.
This Rule also allows CMS to hold lead agents accountable for misconduct or noncompliance with HHS Exchange standards and requirements. This update will allow CMS to strengthen compliance reviews and enforcement actions against agencies and their lead agents to ensure that the individuals who are directing and/or overseeing the misconduct or noncompliance are held accountable.
Additionally, CMS has updated its model consent form to help agents, brokers, and web-brokers obtain and document consumer consent for Marketplace enrollments and eligibility applications. The updates also add scripts that agents, brokers, and web-brokers may use to meet the consumer consent and eligibility application review requirements via an audio recording.
Addressing Allowable Cost-Sharing Reduction (“CSR”) Loading
CSR loading practices are allowed when the adjustments are actuarially justified and follow state law, provided the issuer does not otherwise receive reimbursement for such amounts. CSR loading increases premium rates to offset the cost of providing cost-sharing reductions, which lower the amount consumer pay for deductibles, copayments, and coinsurance. Codifying these practices likely will promote market stability and provide greater clarity for issuers.
Advancing Health Equity and Mitigating Health Disparities
The Rule allows issuers to implement fixed-dollar or percentage-based premium payment thresholds, helping consumers who owe small premium amounts to maintain coverage even if they have not paid the full amount owed.
The Rule amends the Medical Loss Ratio (“MLR”) reporting and rebate calculations for qualifying issuers’ plans that focus on underserved communities with high health needs. These plans will have the option to modify the treatment of net risk adjustment receipts for purposes of the MLR and rebate calculations, so that these net receipts impact the MLR denominator rather than the MLR numerator.
CMS will conduct Essential Community Provider (“ECP”) certification reviews to ensure issuers include a sufficient number and geographic distribution of ECPs in their provider networks.
Making It Easier to Enroll in and Maintain Health Care Coverage
The Rule extends consumer notification requirements to two consecutive tax years for failure to file and reconcile. Exchanges are required to send notices to tax filers or their enrollees for the second year in which they have failed to reconcile their advanced payment of the premium tax credit (“APTC”). A notice to the tax filer may specifically explain that if they fail to file and reconcile for a second consecutive year, they risk being determined ineligible for APTC. Alternatively, an Exchange may send a more general notice to the enrollee or their tax filer explaining that they are at risk of losing APTC, without the additional detail that the tax filer has failed to file and reconcile APTC. These notices are intended to educate consumers about the need to file and reconcile to keep health care coverage affordable.
The Rule updates to the Basic Health Program (“BHP”) payment methodology noting that CMS will recalculate the premium adjustment factor if a state is using the premiums from a year in which BHP was only partially implemented as the basis for their federal BHP payments. Also, CMS provided a technical clarification explaining that if there is more than one-second lowest-cost silver plan in a county, a state’s BHP payment will be based on the premiums of the relevant plan in the largest portion of the county, as measured by the county’s total population.
Simplifying Plan Choice and Improving Plan Selection
Issuers on the Marketplaces are required to offer standardized plan options at every product network type, at every metal level, and throughout every service area where they offer non-standardized plan options. (Standardized plan options are Qualified Health Plans (“QHPs”) with standardized cost sharing and coverage for certain benefits.) CMS is updating standardized plan options for plan year 2026 to ensure the plans’ actuarial values (“AVs”) align with the plans’ metal levels and continuity in the plans’ designs. Also, issuers offering numerous standardized plan options within the same product network type, metal level, and service area must distinguish these plans from each other to minimize duplicative offerings (which would make it easier for consumers to select and compare plan options).
The Rule amends the regulations to clarify that issuers have flexibility to determine whether to include coverage for adult dental, pediatric dental, and adult vision benefits within their non-standardized plan options.
Increase Transparency
The Rule includes CMS’s public release of State Marketplace operations data, such as spending on outreach, education, and marketing, and call center metrics to increase transparency, efficiency, and accountability. Beginning January 1, 2026, CMS will also release aggregated, summarized Quality Improvement Strategy (“QIS”) information annually, with an aim to improve the quality of health care coverage.
Further Refining the HHS-operated Risk Adjustment Program
CMS is recalibrating the risk adjustment models beginning in the 2026 benefit year using 2020-2022 data. It will also phase out market pricing adjustment to plan liability associated with Hepatitis C drugs (aligning these drugs with other specialty drugs) and add HIV pre-exposure prophylaxis (PrEP) drugs to the risk adjustment models as another factor for both children and adults (increasing coverage and access to care for these patients).
CMS is making changes to the initial and second validation audit policies required for issuers offering risk adjustment covered plans to improve the precision of these audits and the risk adjustment results.
Issuers of risk adjustment covered plans can appeal second validation audit risk adjustment results or error rate findings if the amount in dispute exceeds the materiality threshold for filing. CMS finalized a second materiality threshold to rerun the results if the appeal is successful. That threshold is met if the financial impact on the issuer is at least $10,000. It is expected that this would reduce administrative costs both to issuers and the government.
Strengthening the Marketplace’s Impact on Consumers
The Rule establishes a user fee rate of 2.5% of monthly premiums for the federal Marketplace, and 2.0% of monthly premiums for state-based Marketplaces on the federal platform. If enhanced premium tax credit subsidies are extended for consumers through the 2026 benefit year by July 31, 2025, then the user fee rates would be reduced to 2.2% and 1.8% of total monthly premiums, respectively.
The Rule finalizes a $0.20 per member per month risk adjustment user fee for the 2026 benefit year.
CMS revised its methodology to update its Actuarial Value Calculator to calculate an issuer’s level of coverage (i.e., metal tier) so that only a single, final version of it is published each year.
The Rule includes guidance for State Marketplaces to review and resolve data inaccuracies and send them to HHS within 60 days of receipt of completed submissions from issuers. This would help efficiently resolve issues with accurate and timely payments of APTC to consumers and increase their access to health care coverage.
The Rule adds the clarification that the Marketplace may deny QHP certification to any plan failing to meet certain criteria. Issuers may request reconsideration of a denial, provided that they submit a written request of reconsideration with clear and convincing evidence that the denial was in error.
FOOTNOTES
[1] The Rule is not impacted by President Trump’s pause of agency action since the Rule’s effective is before the Executive Order was issued on January 20, 2025.
New York Governor Signs Privacy and Social Media Bills
On December 21, 2024, New York Governor Kathy Hochul signed a flurry of privacy and social media bills, including:
Senate Bill 895B requires social media platforms that operate in New York to clearly post terms of service (“ToS”), including contact information for users to ask questions about the ToS, the process for flagging content that users believe violates the ToS, and a list of potential actions the social media platform may take against a user or content. The New York Attorney General has authority to enforce the act and may subject violators to penalties of up to $15,000 per day. The act takes effect 180 days after becoming law.
Senate Bill 5703B prohibits the use of social media platforms for debt collection. The act, which took effect immediately upon becoming law, defines a “social media platform” as a “public or semi-public internet-based service or application that has users in New York state” that meets the following criteria:
a substantial function of the service or application is to connect users in order to allow users to interact socially with each other within the service or application. A service or application that provides e-mail or direct messaging services shall not be considered to meet this criterion on the basis of that function alone; and
the service or application allows individuals to: (i) construct a public or semi-public profile for purposes of signing up and using the service or application; (ii) create a list of other users with whom they share a connection within the system; and (iii) create or post content viewable or audible by other users, including, but not limited to, livestreams, on message boards, in chat rooms, or through a landing page or main feed that presents the user with content generated by other users.
Senate Bill 2376B amends relevant laws to add medical and health insurance information to the definitions of identity theft. The act defines “medical information” to mean any information regarding an individual’s medical history, mental or physical condition, or medical treatment or diagnosis by a health care professional. The act defines “health insurance information” to mean an individual’s health insurance policy number or subscriber identification number, any unique identifier used by a health insurer to identify the individual or any information in an individual’s application and claims history, including, but not limited to, appeals history. The act takes effect 90 days after becoming law.
Senate Bill 1759B, which takes effect 60 days after becoming law, requires online dating services to disclose certain information of banned members of the online dating services to New York members of the services who previously received and responded to an on-site message from the banned members. The disclosure must include:
the user name, identification number, or other profile identifier of the banned member;
the fact that the banned member was banned because, in the judgment of the online dating service, the banned member may have been using a false identity or may pose a significant risk of attempting to obtain money from other members through fraudulent means;
that a member should never send money or personal financial information to another member; and
a hyperlink to online information that clearly and conspicuously addresses the subject of how to avoid being defrauded by another member of an online dating service.
Maryland’s FAMLI Program, Part III: Claims and Dispute Resolution Proposed Regulations
Starting July 1, 2026, Maryland’s Family and Medical Leave Insurance (FAMLI) law will provide up to twelve weeks of paid family and medical leave, with the possibility of an additional twelve weeks of paid parental leave, through a state-run program. Contributions from employers and employees to fund the program will begin July 1, 2025, and the Maryland Department of Labor (MDOL) is currently in the process of developing regulations to implement this law.
Quick Hits
The Maryland Department of Labor has taken an extensive approach to rulemaking for the FAMLI program, including public engagement sessions and multiple iterations of draft and proposed regulations, with the latest section on dispute resolution now open for public comment.
Proposed regulations for Maryland’s FAMLI program cover claims and dispute resolution, detailing procedures for benefit claims, employer responses, and appeals, while also highlighting significant employer concerns such as limited options to challenge fraudulent applications.
Comments on the dispute resolution proposed regulations may be submitted through February 10, 2025.
We explained in part two of this series that the MDOL has taken an unusually extensive and inclusive approach to the traditional rulemaking process, which normally involves the release of proposed regulations for comment, followed by final regulations. Here, however, the MDOL first held a series of public engagement sessions, after which it issued informal “draft” regulations at the beginning of 2024. Following amendments to the FAMLI law made during the 2024 Maryland General Assembly session, the MDOL released a second iteration of “draft” regulations. This was followed by a set of official proposed regulations, for which the comment period closed in November 2024, and now another section of proposed regulations, which are open for public comment.
The proposed regulations thus far are divided into five sections. In part two of this series, we discussed the “General Provisions,” “Contributions,” and “Equivalent Private Insurance Plans” (EPIPs) sections. In part three, we summarize the sections on “Claims,” and—just issued—”Dispute Resolution” as well as some significant employer concerns that have not been addressed by the proposed regulations.
Claims
The “Claims” section is a lengthy and detailed section of the regulations. Of particular note, there are extremely limited options for an employer to report fraud, and no guidance on how the MDOL’s FAMLI Division will handle such reports. Other important points include the following.
Definitions
The proposed regulations add the following significant definitions:
“Alternative FAMLI Purpose Leave” (AFPL) means a separate bank of employer-provided leave specifically designated for medical leave, family leave, qualifying exigency leave, or leave under a disability policy. The regulations specify that such leave must be specifically designed to fulfill a FAMLI purpose, paid, not accrued, not subject to repayment upon departure, not available for general purposes, and available without a requirement to exhaust other leave.
“General purpose leave” means employer-provided paid leave, such as general paid time off (PTO), vacation, personal leave, or sick leave.
“Good cause” refers to the inability to file a complete claim application because of an unanticipated and prolonged period of incapacity due to a serious health condition; a demonstrated inability to reasonably access a means of filing (e.g., natural disaster, power outage, or a significant and prolonged MDOL system outage); or a demonstrated failure of the employer to provide the required notification to the employee.
Required Documentation
Claimants must provide certain documentation to support their benefits claims to include personal identifying information; information about their employers; proof of relationship, meaning a signed affidavit from the employee, official governmental documentation, or documentation from licensed foster care or adoption providers; and certification of a qualifying event containing information that generally mimics the certification requirements under the federal Family and Medical Leave Act (FMLA) (the FAMLI Division will provide forms for an employee’s own or a family member’s serious health condition, and military caregiving reasons).
Employer Response
Employers have five business days to respond to notice of an application, and if they fail to respond, the claim is considered complete. If the employer challenges an employee’s eligibility for benefits, the FAMLI Division will investigate and make a determination. If the employer submits a response after the five-day period that establishes ineligibility, the employee will retain any benefits received, but additional benefits will not be paid and job protection will no longer apply.
Claim Updates
Claimants must update their claims within ten days, or as soon as practicable if there is good cause, for changes in the following: the basis for leave, the dates that leave will be taken, the duration of the leave, and whether the claimant has begun receiving workers’ compensation or unemployment insurance benefits.
Employer Notice
The proposed regulations add “6 months prior to commencement of benefits” to the required points of time in which notice must be provided to employees. In addition, the FAMLI Division will issue forms and templates that employers will be required to use for such notices.
Employee Notice
In addition to reiterating the law’s notice requirements for foreseeable and unforeseeable leave, the proposed regulations provide that employers may waive notice and will be deemed to have done so if they did not include the failure of notice in their responses to claims or if they did not inform an employee that notice is required.
Intermittent Leave
Employees must provide reasonable and practicable notice of the reason, dates, and duration of the leave. If they fail to provide reasonable and practicable notice of their intermittent leave schedule, they may be held accountable under their employers’ attendance policies, but only if the employers first notify the FAMLI Division. If an employee’s use of intermittent leave is inconsistent with the FAMLI leave approval, the employer may request additional information related to the employee’s use of FAMLI leave.
State/EPIP Notice to Claimants
Claimants will receive notice from the state program or the EPIP of the following:
submission of an application and whether it is complete;
when notice is sent to the employer;
when the employer’s response is submitted;
whether the application is approved, including details of benefits; and
whether the application is denied, with the reason and appeal rights.
State/EPIP Notice to Employers
Employers will receive notice from the state program or the EPIP of the following:
submission of an application and, if initially incomplete, a complete application;
claim determination;
reconsideration of appeal of a benefits determination; and
changes to benefits determinations.
Coordination of Benefits
Alternative FAMLI Purpose Leave (AFPL): The proposed regulations assert that an employer may require employees to use AFPL concurrently or in coordination with FAMLI leave, but only if the employer provides advance written notice of this requirement. Then, if an employee declines to apply for FAMLI leave, the employee’s FAMLI benefit eligibility is reduced by the AFPL taken. If the employee receives both, the FAMLI benefit is primary and AFPL may be used to bridge the difference between the FAMLI benefit and full pay, but the employer may deduct the full amount of time taken from the AFPL balance.
General Purpose Leave (GPL): Neither an employer nor employee can require the substitution of GPL for FAMLI leave, but they can agree in writing to use GPL to bridge the gap between FAMLI benefits and full pay. Employers must document and retain any such agreement. Unlike AFPL, only the actual amount of GPL used may be deducted from an employee’s GPL balance.
Sick leave: An employee may use sick leave prior to receiving FAMLI benefits without the employer’s agreement.
Benefit Payment
The first payment will be within five business days after a claim is approved or FAMLI leave has started, whichever is later. Subsequent payments will be made every two weeks. If there is an overpayment, such as benefits being paid erroneously or based on a willful misrepresentation of the claimant, or a claim was rejected after benefits were paid, the FAMLI Division may seek repayment.
Fraud
If fraud is proven after benefits have been approved and issued, those benefits will be treated as an overpayment and job and anti-retaliation protections will not apply.
Dispute Resolution
This newest section of the proposed regulations establishes dispute resolution procedures for the denial of a claimant’s benefits, the denial or termination of an employer’s EPIP, and the reconsideration of an employer’s contribution liability determination. It does not provide an avenue for an employer to challenge the award of benefits. Some of the more significant points follow.
Definitions
“Good Cause” for failing to timely file a request for reconsideration or an appeal is almost the same as that set forth in “Claims,” above, with the only difference being the failure by the entity issuing the adverse determination to provide notice of the dispute resolution procedures.
“Party” means a claimant, an individual who has been disqualified from receiving benefits, an EPIP administrator, and the FAMLI Division. It does not include an employer.
EPIP Denial or Termination
Employers may request review if their application for an EPIP was denied or the EPIP was involuntarily terminated. Requests for review must be filed within ten business days (absent good cause), in writing, with an explanation of why the decision was in error. Decisions will be made within twenty business days by FAMLI Division personnel who did not participate in the EPIP decision at issue, and there may be an informal conference to discuss the review request during that time.
Reconsideration of Adverse Benefit Determination
Employees may request reconsideration of a denial of benefits within thirty (apparently calendar) days (absent good cause), in writing, with an explanation of why the decision was in error. Notice is provided to all “parties” and the employer. Decisions will be made within ten business days by the FAMLI Division or an EPIP administrator personnel who did not participate in the decision at issue, and there may be an informal conference to discuss the review request during that time.
Appeal of Benefit Denials, Underpayments, or Disqualifications
Employees may also appeal an adverse decision, following a request for reconsideration. The appeal must be filed within thirty days. Again, notice is provided to “parties” and the employer. An informal conference may be held at the sole discretion of the FAMLI Division. A hearing will normally be held within thirty days of the filing, with a detailed notice to the “parties” related to the hearing itself. There are also detailed regulations regarding the hearing including: how notice may be provided; the parties’ right to representation; proceeding with the hearing where a party has failed to appear; postponement of the hearing; subpoenas; the hearing procedures; evidence; creation of the record; interpreters; the claimant’s burden of proof; recording; and recusal of hearing officers. Decisions will be issued at the conclusion of the hearing in a final written order to the parties. Such orders are subject to judicial review.
Reconsideration of Contribution Liability Determination
Employers may request reconsideration of a determination of their contribution liability, meaning the amount the FAMLI Division determines to be due each quarter, including both the employer and employee portions. Requests for reconsideration must be filed within thirty days (absent good cause), in writing, with an explanation of why the decision was in error. Decisions will be made within thirty business days by FAMLI Division personnel who did not participate in the decision at issue,
Appeal of Contribution Liability Determination
Employers may also appeal a determination, following a request for reconsideration. The appeal must be filed within thirty days. A hearing will normally be held within sixty days of the filing, with a detailed notice to the employer related to the hearing itself. There are similar provisions to those related to claims appeals, above, such as: how notice is provided; representation; failure to appear; postponement; subpoenas; the hearing procedures; evidence; creation of the record; interpreters; the employer’s burden of proof; recording; and recusal. Decisions will be issued within ninety days, and subject to judicial review.
Enforcement
Although the “draft” regulations included this section, albeit without content, neither section of the proposed regulations does. Presumably, it will be released at a later date.
Continuing Concerns
The proposed regulations do not address some significant concerns for employers. One such concern is that the ability of employers to challenge fraudulent applications for benefits is quite limited. As noted above, employers have five days in which to respond to an application. The regulations contemplate that an employer may provide relevant information after that five-day period, but if that information would result in a revocation of benefits, the employee is still entitled to the benefits already received and, more troublingly, job and anti-retaliation protection continue to apply until benefits are revoked. A separate section states that job and anti-retaliation protections do not apply once fraud is “proven.” There is no clarification of what that means or timeline for how long that might be—meaning that an employer may be required to continue active employment for an employee whom it knows to have engaged in fraud until the FAMLI Division says otherwise.
The regulations provide that, where an employee is taking FAMLI leave to care for a family member and the family member dies, the benefits continue for an additional seven days—which effectively provides bereavement leave that is not one of the specified reasons that one can qualify for leave under the FAMLI law.
While the proposed regulations permit an employer to request additional information where an employee’s use of intermittent leave is inconsistent with the leave approval, there is no provision for an employer to request additional information in response to an initial notice of the need for leave, which may be necessary to establish fraud.
Interested parties may submit comments only on the Dispute Resolution section through February 10, 2025, to the FAMLI Division at [email protected]. As noted previously, the comment period for the sections on General Provisions, Contributions, Equivalent Private Insurance Plans, and Claims has already closed. The FAMLI Division may make additional changes to the proposed regulations based on the comments it receives before issuing them in final form.
As Predicted, Silicon Valley Bank Failure Will Test Fiduciary Duties of Officers and Directors Under California Law
Late last year, I wrote that the the Board of Directors of the Federal Deposit Insurance Corporation had voted unanimously to approve the staff’s request for authorization to file a suit against six former officers and 11 former directors of Silicon Valley Bank and its holding company, SVB Financial Group. I wasn’t surprised because over a year ago, I had pondered whether the possibility of litigation against the bank’s directors and officers. At the time, I observed that the litigation would likely involve California corporate law:
Because both First Republic Bank and Silicon Valley Bank are California corporations, California corporate law will likely be applied to suits against directors and officers. However, the situation is more complex in the case of Silicon Valley Bank because it was a subsidiary of a bank holding company incorporated in Delaware – SVB Financial Group. Therefore, the applicable law may depend upon whether the director or officer is sued in his or her capacity as a director or officer of the holding company or the bank.
On January 16, 2025, the FDIC as receiver filed its complaint in the U.S. District Court for the Northern District of California. According to the complaint the defendants held identical titles at the holding company. The complaint consists of three counts:
Gross negligence against both the director and officer defendants;
Negligence against the officer defendants; and
Breach of fiduciary duty against both the director and officer defendants.
With respect to the fiduciary duty count, the FDIC is alleging breaches of both the duty of care and the duty of loyalty. The alleged source of these duties is common law and as to the director defendants, Section 309 of the California Corporations Code.
Insurance Coverage for Business Interruption Losses: What Retailers Need to Know
Recent business disruptions have highlighted the vulnerabilities retailers face when unexpected events force closures. Whether it’s a utility outage disrupting operations or a fire at a supplier’s facility or neighboring property cutting into sales, insurance may help cover business interruption losses.
Service Interruption Coverage
Retailers should review their property insurance policies, as they may cover losses or expenses stemming from utility outages. For example, some policies cover power or water outages that prevent normal operations or lead to a loss in sales.
Key factors to consider:
Physical Damage Requirements: Some policies require physical loss or damage at the retailer’s premises or the utility provider’s location, but not all policies include such a requirement. Indeed, coverage for losses may be available even if the retailer’s property does not suffer direct physical loss or damage.
Service Interruption Period: Policies often include specific time parameters for coverage, such as a waiting period (e.g., 24 hours) before coverage begins and an indemnity end point, usually when service is restored. However, retailers should also look for provisions allowing extended indemnity periods, which may provide additional coverage beyond the restoration of service. For instance, the time needed to ramp up operations to pre-loss levels may be covered.
Contingent Business Interruption Coverage
Contingent business interruption (CBI) insurance offers protection when a retailer experiences losses because of damage at a supplier’s facility or at an attraction property critical to driving foot traffic. These off-site locations are often referred to as “dependent properties,” and they may specifically be named in the policy, or coverage may include all such locations. This coverage is typically triggered by physical damage at the dependent property, even if the retailer’s own premises remain unharmed.
Examples include:
Supplier Disruption: A fire at a supplier’s facility that halts inventory shipments, preventing the retailer from meeting customer demand and resulting in lost sales.
Neighboring Business Impact: A neighboring business or attraction property affected by a fire, leading to decreased foot traffic and revenue for the retailer.
Key considerations for CBI coverage:
Time Deductibles: Most policies include a waiting period following the incident at the dependent property before coverage begins.
Period of Restoration: Coverage is generally limited to the time reasonably needed to restore operations at the dependent property. Importantly, this period is not cut short by the policy’s expiration.
Action Steps for Retailers
To protect their interests and maximize potential recovery, retailers should:
Analyze Policy Language: Every policy is different. A thorough review is essential to understand the specific scope of service interruption and CBI coverage.
Promptly Notify Insurers: Failure to provide timely notice can jeopardize coverage. Pay close attention to notice requirements, including deadlines and required documentation.
Document Losses: Meticulous record-keeping of sales, expenses, and other relevant financial data is critical to supporting claims.
Seek Expert Guidance: Engaging insurance coverage counsel early in the process can help avoid common pitfalls and strengthen claims.
Retailers operate in an unpredictable environment, but proactive measures and careful attention to policy details can mitigate the financial impact of business interruptions. With the right tools, retail companies can position themselves to effectively navigate these challenges.
Nevada Supreme Court Finds Want Of Personal Jurisdiction Over LLC Members
In a recent post, I questioned why personal jurisdiction was unquestioned. See Questioning Delaware’s Control Over Controlling Stockholders. Personal jurisdiction is, of course, unquestionably fundamental, as evidenced by the Nevada Supreme Court’s recent order in Rich v. Eighth Jud. Dist. Ct., Nv. S. Ct. Case No. 88278 (Jan. 8, 2025). The dispute arose from work performed by an Oklahoma based limited liability company, Jet Commercial Construction, LLC, on a fountain at the The Forum Shops in Las Vegas, Nevada. Forum Shops submitted a claim to Jet’s insurance company, which was rejected due to an exclusion in the policy. Forum Shops then sued two members of the LLC, Messrs. Rich and Sharp, for negligent misrepresentation and breach of contract. After unsuccessfully seeking dismissal for want of personal jurisdiction, the two defendants sought a writ of prohibition from the Nevada Supreme Court.
The Nevada Supreme Court issued the writ. With respect to personal jurisdiction, it explained:
Petitioners were not involved with the emails discussing the certificate of insurance, nor were they even copied on those emails. The general liability insurance application bearing Sharp’s signature was sent to Mt. Hawley in Illinois—not Nevada. And to the extent Rich purposefully availed himself of Nevada with visits to the work site and communications with Forum Shops employees, those contacts are not jurisdictionally significant because the alleged negligent misrepresentation did not arise out of or relate to those contacts. Instead, Rich’s Nevada contacts were incidental to the fountain work and settling payment issues with subcontractors.
Forum Shops also argued that Jet’s minimum contacts impute to Rich and Sharp under an alter-ego theory. The Nevada Supreme Court also rejected this contention, finding that the Forum Shops failed to go beyond the pleadings and adduce “competent evidence of essential facts” supporting alter-ego based personal jurisdiction:
Forum Shops did not produce prima-facie evidence that recognizing Jet’s LLC form promotes “fraud” or “manifest injustice,” beyond the fact that Jet’s alleged insolvency could make it difficult for Forum Shops to collect a prospective judgment. To be sure, Forum Shops failed to show the requisite “causal connection” between petitioners allegedly abusing the LLC form and Jet’s inability to pay a judgment should Forum Shops prevail on its breach of contract claim.
So once again we see that personal jurisdiction matters.
RWI in Health Care M&A: Part 2 [Podcast]
In part two of this two-part series, Matt Miller and Andrew Lloyd analyze representations and warranties insurance (RWI) in the health care M&A landscape.
They discuss the process of finding and securing an insurance underwriter, practical tips for structuring and negotiating RWI policies, how to navigate a claim after the policy is in place, and future trends in the RWI market.
Find part one of this series here.
OMB Memo Pauses Federal Financial Assistance: Legal Challenges and Considerations for Recipients and Subrecipients
Go-To Guide:
The Office of Management and Budget (OMB)’s Jan. 27, 2025, Memorandum M-25-13 pauses funding for financial assistance programs that “may be implicated” by President Trump’s recent Executive Orders.
The programs will be reviewed for consistency with “Administration Priorities.”
The administration may be seeking to terminate awards based on a provision in OMB’s Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) that may permit agencies to terminate financial assistance awards if they “no longer effectuate[] the program goals or agency priorities.”
The “pause” and any future terminations may violate the Congressional Budget and Impoundment Control Act of 1974 (ICA) if the president does not follow its procedures.
The pause has been challenged in U.S. District Court under the Administrative Procedure Act, and a preliminary injunction was issued on Jan. 28.
On Jan. 27, 2025, OMB issued Memorandum M-25-13, entitled “Temporary Pause of Agency Grant, Loan, and Other Financial Assistance Programs.” The Memo directs every federal agency to “temporarily pause all activities related to obligation or disbursement of all Federal financial assistance, and other relevant agency activities that may be implicated by [President Trump’s] executive orders, including, but not limited to, financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal” effective at 5 p.m. EST on Jan. 28 (emphasis in original).
The pause applies to “(i) issuance of new awards [including all activities related to open Notices of Funding Opportunity (“NOFOs”)]; (ii) disbursement of Federal funds under all open awards; and (iii) other relevant agency actions that may be implicated by the executive orders[.]” The Memo states that OMB may grant exceptions to the pause on a “case-by-case basis.”
The Memo states that “[t]his temporary pause will provide the Administration time to review agency programs and determine the best uses of the funding for those programs consistent with the law and the President’s priorities.” It directs agencies to “submit to OMB detailed information on any programs, projects or activities subject to this pause” and to continue the “pause” “to the extent permissible by law, until OMB has reviewed and provided guidance” to the agency.
The Memo seeks to assert political control over federal assistance programs by directing agencies to assign responsibility and oversight for each federal assistance program to a senior political appointee to ensure each program “conforms to Administration priorities.” It also instructs agencies to review pending NOFOs and other assistance announcements “to ensure Administration priorities are addressed, and, subject to program statutory authority,” modify or withdraw announcements and cancel existing awards that conflict with those priorities “to the extent permissible by law.” The Memo suggests that agencies should initiate more investigations “to identify underperforming recipients.”
The Memo applies to grants, cooperative agreements, loans and loan guarantees, and insurance programs, among other types of assistance, and may impact a broad range of programs, from the CHIPS Act to federal highway funding. As originally written, the only specific exceptions were for Medicare, Social Security, and “assistance received directly by individuals.”
On Jan. 28, OMB issued a Clarification Memo stating that “the pause does not apply across-the-board. It is expressly limited to programs, projects, and activities implicated by the President’s Executive Orders, such as ending DEI, the green new deal, and funding nongovernmental organizations that undermine the national interest.” However, it does not explain how agencies would determine which programs are implicated. The only guidance it provides is that “mandatory programs like Medicaid and SNAP” and “[f]unds for small businesses, farmers, Pell grants, Head Start, rental assistance, and other similar programs will not be paused,” and that if agencies are concerned that specifically exempted programs “may implicate the President’s Executive Orders, they should consult OMB to begin to unwind these objectionable policies without a pause in the payments.” The Clarification Memo also attempts to assuage concerns about the disruption, claiming that a pause might be for as little as one day or less.
The Memo appears to be laying the groundwork for a legal basis to terminate awards the administration disfavors. Its repeated references to “Administration Priorities” allude to a provision in 2 C.F.R. § 200.340 (the termination provision of OMB’s Uniform Guidance for federal financial assistance) that permits agencies to terminate an award if it no longer effectuates “program goals or agency priorities” “to the extent authorized by law.”
Awards issued after the revised Uniform Guidance’s Oct. 1, 2024, effective date may be better protected from this than awards issued before that date, depending on agency-specific implementation dates of the Guidance. When OMB amended the Uniform Guidance last year, it clarified that, if agencies want the option of terminating awards on this basis, it “must clearly and unambiguously specify” that in the award’s terms and conditions. That was not as clear under the prior version, which still applies to most awards made before Oct. 1, 2024. Prior to the 2024 changes, 2 C.F.R. § 200.211 required agencies to “make recipients aware, in a clear and unambiguous manner, of the termination provisions in § 200.340, including the applicable termination provisions in the Federal awarding agency’s regulations or in each Federal award.” But previous § 200.340(b) stated that “[a] Federal awarding agency should clearly and unambiguously specify termination provisions applicable to each Federal award, in applicable regulations or in the award” (emphasis added), suggesting that an agency may terminate an award for no longer effectuating program goals or agency priorities even if the award agreement does not expressly contemplate such a termination.
The “pause” and any future terminations may run afoul of the Congressional Budget and Impoundment Control Act of 1974 (ICA) if the administration does not follow its procedures. An “impoundment” is any action or inaction by a federal government officer or employee that precludes obligation or expenditure of budget authority. The Constitution delegates the power of the purse to Congress, and the president cannot unilaterally withhold funds from obligation. Funds are obligated when the agency has created a definite liability for the associated amount.
The ICA permits the president to temporarily withhold funds from obligation—but not beyond the end of the fiscal year—by proposing a “deferral.” Deferrals cannot be used because a president does not agree with the program. The president may also seek the permanent cancellation of funds for fiscal policy or other reasons, including the termination of programs for which Congress has provided budget authority, by proposing a “rescission” in a “special message” that explains the rationale for the recission. If Congress enacts the proposal, the funds would no longer be available. But if Congress does not enact the rescission within 45 calendar days of continuous session after the special message’s receipt, any withheld funds must be reapportioned and made available for obligation and expenditure. Only discretionary (not mandatory) funds can be subject to recissions and deferrals.
In anticipation of challenges under the ICA, OMB’s Jan. 28, 2025, Clarification Memo declares that the pause “is not an impoundment under the Impoundment Control Act.” It claims that “[t]emporary pauses are a necessary part of program implementation that have been ordered by past presidents to ensure that programs are being executed and funds spent in accordance with a new President’s policies and do not constitute impoundments.”
The pause has been challenged in court—advocacy groups representing non-profits and small businesses filed a lawsuit in U.S. District Court for the District of Columbia on Jan. 28 challenging the pause under the Administrative Procedure Act, and the judge granted their request for a preliminary injunction the same day. A group of State Attorneys General also announced that they will seek injunctive relief.
Affected recipients and subrecipients should look closely at the terms and conditions of their award agreements, agency-specific implementations of the Uniform Guidance (including appeal procedures for grant disputes, to the extent the agency has them), and the authorizing statute and any implementing regulations for the programs they are working on to evaluate their options if the government suspends or terminates their awards. To the extent possible, recipients and subrecipients should also try to avoid incurring costs that were not foreseeable prior to the “pause,” as agencies may later assert these costs are unallowable.
The temporary injunction expires Feb. 3, 2025, at 5 p.m. EST.
What You Need to Know about the California Fair Access to Insurance Requirements Plan (FAIR Plan)
This alert begins our series discussing legal issues related to the Southern California wildfires. We invite you to contact us if you would like a free consultation related to this topic. We will continue to provide updates as more information becomes available.
Due to the high risk of wildfires in California, many private homeowner insurers have made a business decision to leave the state. These decisions have left thousands of homeowners seeking insurance from an ever-dwindling pool of providers. Those who are unable to obtain insurance have instead turned to the “insurer of last resort,” better known as the California Fair Access to Insurance Requirements Plan (FAIR Plan).
What is the FAIR Plan?
The FAIR Plan is an insurance “pool” comprised of all California-licensed insurers that allows high-risk California homeowners to have access to basic fire insurance protection while limiting any one insurer’s liability. The plan is run by the California FAIR Plan Association, which, notably, is not a state or public agency. This means it is not taxpayer-funded, and profits from participating insurers come primarily from the sales of policies. However, though the FAIR Plan reported that the number of FAIR Plan dwelling and commercial policyholders grew by a reported 225% over the past two fiscal years, FAIR Plan’s exposure has also significantly increased.
If you were affected by the recent Eaton and Palisades fires in Southern California, there is a relatively good chance you are preparing to, or are in the process of, submitting an insurance claim through your FAIR Plan. You are not alone. Recent reports suggest more than 3,600 policyholders in Altadena, Pacific Palisades, and other parts of greater Los Angeles have already submitted claims to the FAIR Plan. Unfortunately, the claims submission and adjudication process for these policyholders is unlikely to be smooth due to the sheer number of claims and the FAIR Plan’s high exposure in the Southern California area. As such, there are a few points to remember when submitting a claim and communicating with FAIR Plan representatives.
How to Submit a Claim
Policyholders should understand the process for submitting claims. The FAIR Plan website provides a claims submission link. This link can be found here, along with a brief “FAQ” page here. We encourage all policyholders to submit their claims as soon as possible due to the expected delays in the claims adjudication process. Moreover, policyholders should take special care to document all communications with the FAIR Plan in case disputes arise later in the process. All emails with FAIR Plan representatives should be preserved, and, if possible, all phone conversations with representatives should be confirmed in writing through email. In addition, all documentation relevant to a policyholder’s claim, including pictures of the premises and receipts for lost or affected property, should be kept in a secure location. We also encourage policyholders to document the condition of their homes to the extent possible. Pictures should be taken of every room and all surrounding property prior to any remediation work.
We encourage policyholders to review the language of their FAIR Plan carefully and to submit all possible claims. When in doubt, make the claim. This applies even if your home is not destroyed, as the FAIR Plan should cover fire damage even if the home is left standing.
Understanding Smoke Damage Coverage
Policyholders should be aware of FAIR Plan administrators’ views on coverage for smoke damage. Properties of many policyholders have experienced profound smoke damage that prevents them from returning to their homes. While FAIR Plan policies are required to cover smoke damage, the FAIR Plan has recently narrowed its policies so that smoke damage may only be covered if there are clearly visible signs of damage or if smoke is detectable through smell. Class-action lawsuits have been filed in Alameda and Los Angeles Counties addressing the FAIR Plan’s narrowing of their policies. A primary argument by the plaintiffs in those cases is that the FAIR Plan is required to provide coverage for all smoke damage in accordance with California Insurance Code Section 2071. This would expand policies issued by the FAIR Plan to cover damages beyond permanent physical damage or damage detectable through smell. However, litigation on these issues is ongoing and may drag on for several years. In the meantime, policyholders should assume that all fire damage to their homes, including all smoke damage, will be covered by the FAIR Plan and submit claims accordingly. This should ensure that your claims are included in the class of claims covered by these class-action lawsuits, and that you benefit from any favorable rulings.