California Fair Plan Association v. Ricardo Lara

This appeal concerns the statutory definition of "basic property insurance." The law defines the term as follows:

"'Basic property insurance' means insurance against direct loss to real or tangible personal property at a fixed location in those geographic or urban areas, as designated by the [Insurance Commissioner of this state], from perils insured under the standard fire policy and extended coverage endorsement, from vandalism and malicious mischief, and includes other insurance coverages as may be added with respect to that property by the industry placement facility with the approval of the commissioner or by the commissioner, but shall not include insurance on automobile risks, commercial agricultural commodities or livestock, or equipment used to cultivate or transport agricultural commodities or livestock." (§ 10091, subd. (c)(1), italics added.)

We must decide whether the phrase "and includes other insurance coverages as may be added with respect to that property" authorizes the Insurance Commissioner (the Commissioner) to add liability insurance to the coverages CFPA must offer as "basic property insurance."

Plaintiff and appellant CFPA petitioned the trial court for a writ of mandate directing the Commissioner to withdraw, annul, or vacate a 2021 order directing CFPA to submit a plan to offer and sell a "'Homeowners' Policy'" that provides coverage for, among other things, "premises liability" and "incidental workers' compensation" (Order No. 2021-2). The trial court found the "other insurance coverages" phrase ambiguous and, in deference to the interpretation advanced by the Department of Insurance (DOI), construed the statute to authorize the addition of liability insurance coverages, so long as those coverages "have some connection to the property." We reach a different conclusion. While we agree the statutory definition is susceptible of DOI's interpretation, our review of the statutory scheme and the historical context of the law's passage compel us to conclude that the Legislature's intent in enacting the Basic Property Insurance Law was to ensure that first-party property insurance—not liability coverage—would be available to property owners in this state. We therefore reverse the judgment and direct the trial court to grant the petition for writ of mandate.

On September 24, 2021, the Commissioner issued Order No. 2021-2, which directs CFPA to submit "an amendment to its current Plan of Operation to provide that in addition to the Basic Property Insurance" the association currently offers, CFPA "shall also offer and sell a 'Homeowners' Policy,' that insures against, at a minimum, the following perils to the insured property not currently covered under [CFPA's] dwelling fire policy: accidental discharge or overflow of water or steam; premises liability; incidental workers' compensation; theft; falling objects; weight of ice, snow, or sleet; freezing; and loss of use, including coverage for additional living expenses and fair rental value." (Italics added.)

All told, while the plain text of section 10091, subdivision (c) is reasonably susceptible of DOI's proffered construction, the historical context of the Basic Property Insurance Law's enactment, its stated purposes, and the larger statutory scheme simply do not support the department's implicit claim that the Legislature intended the law to include a "catchall" mechanism that authorizes the Commissioner to require CFPA to offer liability insurance coverage—even if such coverage were somehow "with respect to [the covered] property" (§ 10091, subd. (c)(1)). Nothing that we can glean from these extrinsic aids suggests the Legislature was focused on—let alone intended to address—gaps in liability coverage when it enacted the law. On the contrary, everything we have reviewed—including DOI's own report to the Legislature just four years after the law's enactment—suggests that the evil the law sought to remedy was "the collapse of will of the insurance industry to afford property insurance protection to risks in inner city areas that were perceived to be subject to urban riots and, peculiar to California, to risks located in hazardous brush fire areas." (Italics added.) The law's stated purposes align with this remedial goal and, when read in connection with the other extrinsic aids we have discussed, convince us that in authorizing the addition of "other insurance coverages ... with respect to that property," the Legislature intended these additional coverages to be coterminous in scope with the core definition of "basic property insurance"—namely, "insurance against direct loss to real or tangible personal property at a fixed location." (§ 10091, subd. (c)(1).)

In sum, DOI's 1994 interpretation of section 10091 is neither contemporaneous with the Basic Property Insurance Law's enactment nor the product of formal agency deliberation. It contradicts the department's earlier statements to the Legislature and rests on reasoning that fails to engage with the law's text, structure, or purposes. Under the framework prescribed in Yamaha, the trial court should not have deferred to DOI's proffered interpretation under these circumstances. Indeed, even when the circumstances weigh in favor of judicial deference, final responsibility for construing a statute "'"rests with the courts."'" (Yamaha, supra, 19 Cal.4th at p. 13; accord Dyna-Med, supra, 43 Cal.3d at p. 1389.) Here, as we have discussed, the historical context of the Basic Property Insurance Law's enactment, its stated purposes, and the overall statutory scheme, all favor a construction of section 10091, subdivision (c) that confines the statutory definition of "basic property insurance" to first-party coverages against direct loss or damage to property. The trial court erred when it construed the statute to authorize the Commissioner to add liability coverages.