Wexler v. California Fair Plan Association

(Bad Faith Action Dismissed as Plaintiff Was Not an Insured and Had No Insurable Interest in Home Covered by Property Policy)

(August 2021) - Wexler v. California Fair Plan Assoc., 63 Cal.App.5th 55 (April 14, 2021), discussed several important issues, finding: (1) individuals who are not specifically named under the policy are not third party beneficiaries and cannot sue for bad faith; (2) there is no “special relationship” between an insurer and an insured; and (3) an individual not named on a property policy does not have an “insurable interest” under the policy.

Brooke Wexler lived with her parents in a home in a mountainous area facing a fire danger. Wexler’s parents, Kimberly and James Talbot, owned the home and were insured by a California FAIR Plan. FAIR Plan was created by the California legislature to give homeowners in high risk areas access to basic property insurance. The Talbots alleged smoke damage from the Woolsey wildfire in 2018, but the Talbots claims were not at issue and were previously dismissed with prejudice. Wexler sued FAIR Plan solely for bad faith and did not allege breach of contract. FAIR Plan demurred to Wexler’s bad faith complaint, and the trial court sustained the demurrer without leave to amend holding she lacked standing to sue FAIR Plan for bad faith.

In upholding the trial court, the Court of Appeal first pointed out that the “special relationship rubric” between an insured and insurer has “disappeared.” Next, the court held Wexler cannot sue FAIR Plan for bad faith “because she was not a named signatory, not an additional insured, and not a third-party beneficiary. She lacked a contractual relationship with FAIR Plan and so lacked standing.” Finally, the court held Wexler had no “insurable interest” in the property. “Wexler’s complaint pleaded her parents had no insurable interest in the property she had in their house. We disregard legal conclusions in a complaint; they are just lawyer arguments. Whether an interest is insurable is a question of law.” The court discussed the insurable interest doctrine, which “aims to suppress gambling and to curb moral hazards by refusing to enforce insurance policies that are contrary to public policy.” Because Wexler had no part in the purchase price of her parents’ property and no legal title, she had no “insurable interest.”

Read more about this case and get a link to the full opinion here.