Overview

The aftermath of the Altadena and Palisades fires has exposed a problem that many California homeowners who live in high fire zones didn’t see coming. They had insurance through California’s FAIR Plan and they’ve paid very high premiums for that insurance. But it wasn’t until they lost their homes that many innocent Californians suddenly discovered that their coverage didn’t come close to what it costs to rebuild. This is not a paperwork issue or a misunderstanding of policy language. It is a structural gap between what the FAIR Plan pays and what rebuilding now costs in the real world.

The FAIR Plan is not a traditional homeowners policy. It is a last-resort fire insurance program created for situations where the private insurance market fails. That is exactly what is happening today. As insurers pull out of high fire-risk areas or refuse to renew policies, homeowners have fewer options and often end up on the FAIR Plan whether they want to or not. At the same time, premiums have increased while coverage has not kept pace with the steep rise in construction and supply costs.

The issue is not whether the FAIR Plan provides coverage for catastrophic fire loss. It does. The issue is whether that coverage aligns with what it actually costs to rebuild after a total loss. In higher-cost areas such as the Palisades, rebuild costs often exceed FAIR Plan limits by a wide margin. In areas like Altadena, some homeowners may fall within those limits based on property value alone, but many still face shortfalls once labor costs, material pricing, and updated building code requirements are factored in.

This Fact Sheet focuses on what happens after a fire loss. It explains why FAIR Plan coverage often falls short, how those gaps translate into real financial exposure, and why the problem becomes even more complicated for homeowners in HOA communities. It also explains why this problem is showing up now, not before the fires, and why so many homeowners are discovering the gap only after it is too late to fix it.

[If you’d like to learn more about the effects of the Altadena and Palisades fires on California HOAs, you can read “Can My HOA Force Me to Pay a Special Assessment After the Altadena and Palisades Fires?” You can also watch an episode of the HOA HELL podcast titled “California FAIR Plan 2026 & Altadena / Palisades Fires: Why Many HOA Owners Are Underinsured.”]

Key Points

To understand why California’s FAIR Plan often leaves wildfire victims underinsured, you have to start with what the FAIR Plan is, what it was designed to do, and where its limits collide with modern rebuilding costs. The following points explain how that mismatch developed, why it often produces a major shortfall after a total loss, and why the financial consequences can hit even harder in HOA communities.

• The California FAIR Plan operates as a last-resort insurance option for homeowners who cannot obtain traditional coverage in the private market. The state created the FAIR Plan in 1968 after insurers pulled out of certain areas and left homeowners without access to private coverage. The program exists to ensure that property owners can still obtain essential insurance coverage, such as fire insurance, when the private market fails. It was never designed to serve as the broad, default source of coverage for large numbers of homeowners living in wildfire-prone communities.
  • The FAIR Plan now covers far more homeowners than it was ever designed to handle. According to the California Department of Insurance, residential policy counts more than doubled between 2015 and 2023. That surge tracks directly with the mass withdrawal of major insurers from California’s high fire-risk areas. That growth did not happen because homeowners suddenly preferred bare-bones fire coverage. It happened because more and more homeowners in high-risk areas lost access to viable private-market options and got pushed into a last-resort product that was never intended to become the fallback for this many people.
  • The FAIR Plan is not a state-run program, and it’s not funded by the taxpayers. Although many people think that the FAIR Plan is funded by the state, that is not the case. It’s funded by the premiums paid by participants, as well as by all the insurance companies doing business in California.
• The FAIR Plan does not operate like a full homeowners policy, and that distinction matters most after a fire. The FAIR Plan does not mirror a traditional homeowners policy. It provides basic property coverage as an insurer of last resort, not the broad protection that homeowners usually associate with a traditional homeowners policy. So in the context of this Fact Sheet, it covers losses caused by fire, with certain other coverages (e.g., water damage, theft, or liability) available only as add-ons. That is why many homeowners who can afford it purchase separate Difference-in-Conditions (DIC) policies to fill some of those gaps.
• The central problem is not that the FAIR Plan fails to pay for fire damage at all. The central problem is that the amount it pays can fall well short of what rebuilding now costs. California increased the FAIR Plan’s residential coverage limit to $3 million in 2019, but that does not mean $3 million buys a full rebuild in every market. In places such as the Palisades, Malibu, and other high-cost areas, a homeowner can burn through that limit quickly once demolition, debris removal, design work, permitting, labor, materials, and code-compliance costs start stacking up.
  • Updated building and safety requirements make the shortfall worse. The FAIR Plan’s current dwelling policy excludes ordinance-or-law losses unless that coverage appears on the declarations, and even when present, the policy limits that coverage to increased costs tied to the damaged portion of the structure and does not cover every cost that can arise from rebuilding under newer rules. The same policy also states that selecting and maintaining adequate limits is the insured’s responsibility and expressly disclaims any guarantee that the policy limits will be sufficient to cover the full replacement cost of the home. That matters because post-fire rebuilding rarely means replacing a house board-for-board under old standards. It usually means rebuilding under newer and more expensive ones.
  • DIC policies do not necessarily solve the rebuild-gap problem by themselves. California Department of Insurance data for 2023 showed that for every two new or renewed FAIR Plan policies, there was only one new or renewed DIC policy. That means many FAIR Plan homeowners do not even have the supplemental protection needed to mimic the common coverages found in a traditional homeowners policy. But even homeowners who do carry a DIC policy still face the harder question: whether the fire-policy limits, code-upgrade protection, and HOA coverage stack up to present-day rebuild costs after a catastrophic loss. DIC can fill coverage-category gaps. It does not magically erase an underinsured replacement-cost gap.
• Once you move from single-family homes to HOA-governed condos and townhomes, the numbers change dramatically. The Department of Insurance treats condo and townhome buildings differently than single-family homes. For example, HOAs who are forced into the FAIR Plan to cover HOA-owned common area buildings purchase their coverage under the FAIR Plan’s commercial coverage, which is currently limited to $20 million per building, with a $100 million maximum per location. But higher limits do not guarantee adequate limits, especially where multi-unit rebuild costs remain extraordinarily high.
  • Homeowners living in condominiums and townhomes governed by HOAs face other challenges as well. The financial exposure can hit even harder in multi-unit HOA communities (i.e., condos and townhomes) because those homeowners face two separate insurance layers and neither one guarantees a painless rebuild. The HOA’s master policy covers one layer. The owner’s individual policy, often an HO-6, covers another. If the HOA’s master coverage falls short after a major fire, the gap does not disappear. The HOA might have no choice but to push that shortfall back onto the membership through special assessments. This can come as yet another major financial blow to families who have already lost everything. That is why homeowners in HOA communities cannot look only at their own FAIR Plan policy and assume they have measured the full risk. They also need to understand how their HOA insured the buildings, whether the limits kept pace with replacement cost, and whether the HOA board made defensible decisions about coverage before the loss occurred. Homeowners also need to determine whether their supplemental policies might cover such special assessments imposed by the HOA.
• The gap does not disappear just because the state streamlines rebuilding. SB 625 may help with process. It does not change the amount the policy will pay. That distinction remains critical. Streamlining approvals, reducing red tape, or accelerating reconstruction may help homeowners move faster, but none of those changes close the funding gap between the policy limit and the actual rebuild cost. [If you’d like to learn more about SB 625, you should read my Fact Sheet, “Can My California HOA Block Me from Rebuilding After the Palisades Fire or Other Disasters?” or watch an episode of my podcast, HOA HELL, titled “Can My California HOA Interfere with My Rebuilding After a Fire or Other Disaster?”]
• If a wildfire destroys your home or your HOA building, the hardest question may not be whether you had insurance. It may be whether you had enough of the right insurance. That is the real-world lesson from Altadena, the Palisades, and similar fire disasters. Homeowners often do not discover the answer until it is too late to adjust their limits, too late to buy better structural coverage, too late to acquire DIC policies, and too late to avoid the debt, out-of-pocket payments, or special assessments that follow. The FAIR Plan can provide critical coverage where the private market refuses to do so. But in many fire-loss scenarios, especially in HOA communities, that does not mean it provides enough money to rebuild.
• The most practical thing homeowners can do before a loss is pressure-test the numbers, not just the existence of coverage. Review the dwelling limit. Review whether ordinance-or-law coverage appears on the declarations and in what amount. Review whether inflation guard is active. Review whether you have a DIC policy at all. If you live in a condominium or townhome, review the HOA’s master-policy summaries and ask what assumptions the HOA used to set limits. Then ask your broker the one question that matters most: if this home or this building burns to the ground this year, what specific dollars would still come out of my pocket? A homeowner who does not ask that question before the fire will usually ask it at the worst possible time, after the loss, when the answer can no longer be fixed inexpensively.
• If you are on the FAIR Plan, do not assume that you have sufficient coverage to rebuild your home. Never rely on mere assumptions. Instead, confirm them. This includes never assuming that your HOA got the master-policy side right, either.
• If you are dealing with a FAIR Plan shortfall or an HOA fire-loss assessment, call the HOA attorneys at MBK Chapman. Recent reporting out of Altadena shows how quickly an insurance shortfall can turn into an HOA special assessment crisis. Homeowners need more than generic advice when a master policy, a rebuild budget, and an HOA special assessment collide. The HOA lawyers at my law firm are widely considered the most experienced and best trained in California. Let us help you.

Even with expanded coverage levels for larger properties, the underlying problem does not go away. The FAIR Plan was not designed to keep pace with today’s rebuilding costs at scale, and in HOA communities, that gap does not stay isolated. It spreads across the entire membership. When coverage falls short, the difference does not disappear. It becomes a shared financial burden, often in the form of significant special assessments imposed after the loss.

FAQs

About MBK Chapman Fact Sheets

Homeowners searching for answers online will often come across articles that appear authoritative, but are actually written as search-engine marketing content rather than by an experienced HOA lawyer. These pieces tend to prioritize keyword density over clarity, accuracy, or legal context, which often leaves homeowners more confused than informed.

At MBK Chapman, our Fact Sheets are part of our HOA Law Library and are written by Michael Kushner, an HOA lawyer with decades of hands-on experience representing California homeowners. In fact, Michael Kushner is the HOA lawyer who pioneered the systems and strategies used by some of California’s most successful homeowner-side HOA law firms.

Each Fact Sheet is deliberately concise, statute-based, and designed as a quick-reference guide to help homeowners understand key HOA laws and enforcement rules at a glance.

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