Despite a court loss and sanctioning by state regulators, California’s home insurer of last resort continues to deny smoke damage claims from the January wildfires — even when toxic substances have been found in homes, according to a Times review of denial letters.

The California FAIR Plan Assn. has rebuffed policyholders seeking to have their smoke-damaged homes remediated through professional cleaning or the replacement of structures and fixtures such as drywall, insulation and lighting, the half dozen letters and email exchanges sent during July and August show.

In denying the claims, the plan initially cited language deemed illegal by a Los Angeles County Superior Court judge in a landmark June decision that had required policyholders to show that their property suffered “permanent physical changes.”

Last month, the plan changed the wording and told policyholders with smoke damage claims that they must show “distinct, demonstrable and physical alteration” to their property — citing a 2024 state Supreme Court case that established that threshold in an insurance dispute over a COVID-related business closure.

Hilary McLean, a spokesperson for the FAIR Plan, said the insurer is no longer applying the language at issue in the June court decision and has been “updating all customer communications to ensure they consistently reflect the correct language.”

“Our goal is and continues to be to provide fair and reasonable coverage for wildfire-related losses while maintaining the financial integrity of the FAIR Plan for all policyholders,” she said in an emailed statement.

But attorney Dylan Schaffer, who represented the plaintiff in the June decision and shared the correspondence reviewed by The Times, said whatever the language cited by the plan, the result is denials that are unfair to policyholders.

“This stuff is going everywhere and it’s not dirt — it’s toxic,” he said, referring to smoke damage. “And you tell me that some 82-year-old is going to get up in the attic with a hazmat suit on, rip out the insulation and start vacuuming around?”

On Friday, Gov. Newsom called on the FAIR Plan to “expeditiously and fairly” process smoke damage claims arising out of the fires, saying the state has received hundreds of complaints from policyholders.

The January fires have been the worst catastrophe in decades to hit the FAIR Plan, which is operated and backed by the state’s licensed home insurers, including State Farm, Farmers and Mercury.

The plan estimates losses of $4 billion and it has assessed its member carriers $1 billion in order to pay claims.

In recent years, the plan took on hundreds of thousands of policyholders as insurers began pulling out of the state’s fire-plagued homeowners market. Enrollment in the Eaton and Palisades fire zones nearly doubled to 28,440 from 2020 to 2024, according to a Times analysis.

Schaffer believes the plan may have received more than 2,500 smoke damage claims given how many the plan reported it received for partial losses, indicating the structures were still standing.

McLean said the plan could not say how many smoke damage claims it has received due to the fires, nor the number rejected or paid.

The smoke damage policy has been controversial for years and sparked multiple lawsuits, but it wasn’t until June in a case brought by a Northern California homeowner that a judge found the policy violated state law.

That decision by Los Angeles County Superior Court Judge Stuart Rice found that the FAIR Plan’s requirement that smoke damage result in “permanent physical damage” violated the insurance code because it provides less coverage than what is required by the state’s Standard Form Fire Insurance Policy. The case is pending.

Consumer advocates had hoped the decision might prompt the plan to alter how it handled smoke damage claims, even though the ruling wasn’t issued by an appellate court. However, in several letters denying the claims, the plan said the decision had no bearing, noting in one letter “it is not controlling legal authority.”

“Trial court decisions have no precedential value in California; they bind the parties but not another court,” noted James Fischer, an insurance law expert and professor at Southwestern Law School in Los Angeles.

After the decision, the state Department of Insurance took legal action on July 31, threatening the FAIR Plan with a cease-and-desist order over the language. It also accused the insurer of failing to investigate claims fairly and denying legitimate claims without a reasonable basis.

The plan has denied wrongdoing and is seeking an administrative hearing to dispute the allegations.

In one smoke damage case, the plan acknowledged that it had received a report from a policyholder’s industrial hygienist that found a home in Pacific Palisades had been exposed to “toxic” levels of carcinogens, chemicals and particulates, according to a letter sent to the homeowner in August viewed by The Times.

The firm recommended the removal of drywall, plaster, wooden floors and other building materials, according to the letter. However, an expert hired by the plan concluded the home only needed to be cleaned and so the smoke claim was rejected.

“Under the terms of your dwelling property insurance policy, coverage for smoke damage is available only when there is a direct physical loss, which is defined in California law as a distinct, demonstrable and physical alteration of covered property,” the letter stated.

“If the hygienist recommendations call for cleaning, including cleaning of lead and/or asbestos, and there is no direct physical loss to the property, there is no coverage,” it went on to say.

The plan did offer to reinspect the home if cleaning was not successful in removing the contaminants.

Schaffer said he expects that the new language will become a point of contention in the dozens of lawsuits that he and other attorneys have filed on behalf of fire victims against the FAIR Plan.

In March, California Insurance Commissioner Ricardo Lara issued a bulletin advising insurers that the Supreme Court decision does not state “smoke damage is never covered as a matter of law.” A department spokesman declined to comment further, citing the litigation with the plan.

Altadena homeowner Maral Donoyan, 59, who spoke to The Times in April about her difficulties in dealing with the plan, said she and her husband were only able to move back into their smoke-damaged home in June after taking out a Small Business Administration loan.

The plan denied the couple’s smoke damage claim, even though their garage partially burned, she said. That forced the couple to spend close to $200,000 of their own money on remediation, with the bedroom above the garage still needing work, said Donoyan, who is a plaintiff in another lawsuit against the plan.

“Toxic, traumatic, bad faith, immoral,” is how she describes her interactions with the plan.