Difference in Conditions (DIC) Insurance: The Policy That Makes the FAIR Plan Work

A Difference in Conditions (DIC) policy is a supplemental insurance policy designed to fill the coverage gaps left by a basic or limited underlying policy. In the California residential market, DIC policies exist for one primary reason: to make the California FAIR Plan function like a real homeowner’s policy. Without a DIC policy sitting on top of the FAIR Plan, you have fire coverage and almost nothing else.

What “Difference in Conditions” Actually Means

The name tells you how the policy works. A standard homeowner’s policy — an HO-3, for example — covers a broad range of perils: fire, theft, water damage, liability, wind, hail, vandalism, loss of use, and more. The FAIR Plan covers fire, lightning, internal explosion, and smoke. The difference in conditions between those two policies is everything the FAIR Plan leaves out. The DIC policy covers that difference.

Think of it this way: if a standard HO-3 is the full package, and the FAIR Plan is a stripped-down version that only covers fire and a few named perils, the DIC is everything else. Together, the FAIR Plan plus the DIC should approximate the coverage you would have had from a standard carrier — if a standard carrier were still willing to write your policy.

Why DIC Policies Became Critical in California

DIC policies have existed in commercial insurance for decades, but they became a household term in California because of the California insurance crisis. As major carriers — State Farm, Allstate, Farmers, USAA, and others — stopped writing new homeowner policies or non-renewed existing ones, hundreds of thousands of California homeowners were forced onto the FAIR Plan as their only option for fire coverage.

The problem is that the FAIR Plan was never designed to be a complete homeowner’s policy. It is an insurer of last resort that provides fire coverage and little else. So a secondary market developed: surplus lines carriers began offering DIC policies that sit on top of the FAIR Plan and provide the missing coverages. For many California homeowners today, this FAIR Plan + DIC combination is the only way to get anything resembling comprehensive coverage.

What the FAIR Plan Covers (and What It Leaves Out)

To understand what the DIC adds, you need to understand what the FAIR Plan provides. The standard FAIR Plan homeowner policy covers:

• Fire — including wildfire
• Lightning
• Internal explosion
• Smoke — from a hostile fire
• Optional endorsements for windstorm, hail, vandalism, and extended coverage perils

The FAIR Plan does not cover:

• Water damage (burst pipes, appliance leaks, rain intrusion, accidental discharge)
• Theft
• Personal liability
• Additional living expenses (ALE) — unless a limited endorsement is purchased
• Replacement cost coverage for personal property
• Ordinance or law / code upgrade coverage
• Debris removal beyond a basic sublimit
• Medical payments to others

What the DIC Policy Adds

A well-written DIC policy fills every gap listed above. The specific coverages vary by carrier and form, but a typical residential DIC policy adds:

• Personal liability coverage— if someone is injured on your property or you cause damage to someone else’s property
• Theft coverage— burglary, robbery, and mysterious disappearance of personal property
• Water damage— accidental discharge from plumbing, appliance leaks, burst pipes, and other sudden water events
• Additional living expenses (ALE) / loss of use— the cost of living elsewhere while your home is uninhabitable due to a covered loss
• Broader personal property coverage— often at replacement cost rather than the FAIR Plan’s actual cash value
• Medical payments to others— no-fault medical coverage for guests injured on your property
• Vandalism and malicious mischief— if not already endorsed on the FAIR Plan
• Falling objects, weight of ice/snow, and other HO-3 perils— perils that are standard on a homeowner’s policy but absent from the FAIR Plan

How the Coordination Mechanism Works

The DIC policy contains a coordination provision that defines how it interacts with the underlying FAIR Plan. This provision typically works in one of two ways:

1. Excess coverage: For perils covered by both the FAIR Plan and the DIC (such as fire), the DIC only pays the amount that exceeds what the FAIR Plan pays. If your FAIR Plan limit is $500,000 and the DIC provides an additional $500,000 of fire coverage, the DIC pays only after the FAIR Plan has paid its full limit.
2. Difference coverage: For perils covered by the DIC but not covered by the FAIR Plan (such as theft, water damage, or liability), the DIC responds as primary coverage because the FAIR Plan has no coverage to coordinate with.

This coordination mechanism is the heart of the DIC concept. It is also the reason the DIC cannot function without the underlying policy. The DIC is built around the assumption that a FAIR Plan (or equivalent) exists underneath it. Remove the underlying policy, and the coordination provision has nothing to coordinate with — which creates the coverage disaster described below.

DIC for Earthquake Gap Coverage

Some DIC policies go beyond filling the FAIR Plan gaps and also provide earthquake coverage. This is particularly valuable for properties that cannot obtain coverage through the California Earthquake Authority (CEA) — either because the property does not qualify, the CEA deductibles are too high, or the CEA coverage limits are inadequate for the home’s value.

When a DIC includes earthquake coverage, it typically provides broader protection than a standalone CEA policy. CEA policies have high deductibles (typically 5–25% of the dwelling limit), limited contents coverage, and capped loss of use benefits. A DIC with earthquake coverage may offer lower deductibles, fuller contents protection, and more generous ALE limits — though the premiums will reflect this.

DIC for Flood Gap Coverage

Some DIC policies also include flood coverage, which is excluded from both the FAIR Plan and standard homeowner policies. This can be an alternative to a separate National Flood Insurance Program (NFIP) policy or private flood policy. However, flood coverage through a DIC is typically subject to sublimits and may not provide the same level of protection as a standalone flood policy. Review the flood coverage terms carefully — particularly the definition of “flood,” the sublimit, and whether it covers surface water, storm surge, or only certain flood events.

Common California DIC Carriers

DIC policies in California are typically written by surplus lines carriers — insurers that are not admitted in the state but are authorized to write coverage that admitted carriers will not. Some of the carriers and managing general agents (MGAs) active in the California DIC market include:

• Lloyds of London (various syndicates)
• Scottsdale Insurance Company (a Nationwide subsidiary)
• Lexington Insurance Company (an AIG subsidiary)
• QBE Insurance
• Palomar Specialty Insurance
• TOPA Insurance Company
• Various MGAs that package FAIR Plan + DIC combinations

Filing Claims on a FAIR Plan + DIC Combination

When you have a FAIR Plan + DIC combination and suffer a loss, the claims process is more complex than filing with a single carrier. Which carrier you file with depends on the cause of loss:

• Fire loss: File with the FAIR Plan first. The FAIR Plan covers the fire damage to the dwelling and contents (at ACV). If you have DIC coverage that provides excess fire limits or replacement cost on contents, file with the DIC carrier as well for the amounts above the FAIR Plan payment.
• Water damage (burst pipe, appliance leak): File with the DIC carrier only. The FAIR Plan does not cover water damage, so the DIC responds as primary.
• Theft:File with the DIC carrier only. Same rationale — the FAIR Plan does not cover theft.
• Liability claim (someone injured on your property): File with the DIC carrier only.
• Mixed-cause loss (e.g., fire followed by water damage from firefighting): File with both. The fire damage goes to the FAIR Plan; the water damage may go to the DIC carrier if the FAIR Plan does not cover it. Coordination between the two carriers is critical.

Timing matters. California Insurance Code §2695.7(b) requires insurers to accept or deny a claim within 40 days of receiving proof of claim. But when two carriers are involved, each may wait on the other to determine its own liability. You need to push both carriers simultaneously and document your communications with each.

Carrier Tactics on DIC Claims

DIC claims create unique opportunities for carriers to delay, deny, and underpay. Here are the tactics we see most often:

Pointing at the Other Carrier

The most common tactic. The FAIR Plan says the damage should be covered by the DIC. The DIC carrier says it should be covered by the FAIR Plan. The policyholder is caught in the middle while both carriers delay. Under California’s Fair Claims Settlement Practices Regulations (10 CCR §2695.7(g)), an insurer must not force a policyholder to file with another carrier before accepting or denying a claim. Each carrier must independently evaluate its own coverage obligations.

Arguing the Loss Should Be Covered by the Underlying Policy

The DIC carrier argues that the peril that caused the loss is actually covered under the FAIR Plan, so the DIC does not owe. This is often a mischaracterization of the cause of loss. For example, after a wildfire, if firefighting water causes mold, the DIC carrier may argue that the entire loss is fire-related and belongs to the FAIR Plan — even though the FAIR Plan does not cover mold or water damage.

Delays in Coordinating

When two carriers are involved, delays compound. The FAIR Plan adjuster needs to inspect before the DIC adjuster will evaluate. The DIC carrier wants to see the FAIR Plan payment before determining its own obligation. Months pass. Under 10 CCR §2695.7(c), if an insurer needs additional time, it must provide written notice every 30 days explaining the reasons for the delay. Demand those notices in writing and escalate to the California Department of Insurance if they are not provided.

Refusing to Pay ALE While Waiting for Coordination

If your home is uninhabitable and the carriers are fighting over who owes what, your additional living expenses claim should not wait. ALE is typically covered under the DIC policy. The DIC carrier cannot withhold ALE payments while it sorts out the coordination with the FAIR Plan. You are displaced now, and the carrier’s internal processes do not change that.

The Catastrophic Mistake: Dropping the FAIR Plan

This is the single most important warning in this article. Some homeowners, facing rising premiums on both the FAIR Plan and the DIC policy, decide to drop the FAIR Plan to save money and keep only the DIC. This is a potentially catastrophic mistake.

Here is why this happens. The DIC policy’s coordination provision typically states that for perils covered by the underlying policy, the DIC only pays excess of the underlying limits. If fire is listed as a peril covered by the underlying policy, and there is no underlying policy, the DIC carrier takes the position that there is simply no coverage for fire under the DIC — because the DIC assumed the underlying policy would cover it.

Some DIC policies go further and include a provision requiring the policyholder to maintain the underlying coverage as a condition of the DIC policy. If you cancel the FAIR Plan, you may have voided the entire DIC policy — not just the fire coverage, but everything.

We have seen homeowners learn this lesson in the worst possible way: after a total fire loss, when they discover they have no coverage at all.

Practical Tips for FAIR Plan + DIC Policyholders

1. Make sure your FAIR Plan and DIC limits align. If your dwelling is worth $800,000 and your FAIR Plan only covers $500,000, confirm that your DIC provides the remaining $300,000 in excess fire coverage. Gaps in limits mean gaps in coverage.
2. Review both policies together, side by side.Look at the DIC’s definition of “underlying insurance” and make sure your FAIR Plan meets that definition. Look at the DIC’s list of covered perils and compare it to a standard HO-3 to see if anything is missing.
3. Understand which carrier covers which peril before a loss occurs. Build a simple chart: fire goes to the FAIR Plan, water damage goes to the DIC, theft goes to the DIC, liability goes to the DIC. Know this before you need it.
4. Never cancel the FAIR Plan without consulting your broker. If you are considering dropping the FAIR Plan to reduce costs, understand that you are likely eliminating your fire coverage entirely. The savings are not worth the risk.
5. Keep copies of both policies in a fireproof safe or off-site. After a total loss, you will need both policy documents. If they are in the house that burned down, you are starting at a disadvantage.
6. Check whether your DIC includes ordinance or law coverage. The FAIR Plan does not include ordinance or law coverage. If your DIC does not include it either, you may have no coverage for code upgrade costs after a loss — which can add 25–50% to the cost of rebuilding.
7. Confirm your DIC provides replacement cost on contents.The FAIR Plan covers contents at actual cash value (ACV). If your DIC provides replacement cost value (RCV) for personal property, that is a significant benefit — but you need to confirm it is in the policy.
8. Ask about your DIC carrier’s A.M. Best rating. Since most DIC carriers are surplus lines insurers not covered by CIGA, their financial stability matters more than usual.

When to Get Professional Help

DIC claims are inherently more complex than single-carrier claims because you are dealing with two separate insurance companies, two separate policies, two separate adjusters, and two separate claims processes — all for the same loss. If you have a significant claim on a FAIR Plan + DIC combination, particularly a fire loss or any loss where both carriers may have exposure, consider working with a licensed Public Adjuster who understands DIC coordination. The difference between getting both carriers to pay what they owe and getting caught in an endless loop of finger-pointing can be tens or hundreds of thousands of dollars.

The Bottom Line

A DIC policy is not optional for California homeowners on the FAIR Plan — it is essential. Without it, you have fire coverage and almost nothing else. But the DIC only works if the FAIR Plan is underneath it. The two policies are designed as a pair. Drop one, and the other does not function as intended.

Review both policies now, while there is no claim pending. Understand what each one covers. Confirm your limits match. And whatever you do, do not cancel the FAIR Plan to save on premiums. The premium savings will be meaningless the day you need fire coverage and discover you do not have it.