FAIR Plan and DIC: How the Two Policies Work Together on a Claim

A California FAIR Plan dwelling policy and a difference in conditions (DIC) policy work as one program with two carriers. The FAIR Plan pays for the causes of loss named in its policy (fire, lightning, internal explosion and smoke, plus any options you buy). The DIC carrier pays for the other common homeowner losses, chiefly water damage, theft and liability. When something goes wrong, the cause of the loss decides which policy responds. Each carrier applies its own deductible and its own limits.

This guide is the practical companion to our explainers on the California FAIR Plan and DIC insurance. It walks through setting up the pair in order, then runs five illustrative claims through it to show where the seams are. If you already hold a FAIR Plan policy and need the other half, you can request a DIC quote while you read.

How do a FAIR Plan policy and a DIC policy fit together?

They split the house by cause of loss. The FAIR Plan dwelling policy is a named peril policy: it covers only damage from the causes of loss listed in it, which are fire and lightning, internal explosion and smoke. Vandalism and other perils are optional at an added cost.^[1] The FAIR Plan says DIC policies supply what it does not offer, "such as water damage, theft and liability coverage," so that the pair gives coverage similar to a comprehensive homeowners policy. It also says it does not sell DIC policies itself.^[2]

California law puts this pairing in front of every homeowner who loses a policy. Insurance Code section 678 requires the residential nonrenewal notice to explain that a FAIR Plan policy may not cover liability, theft or water damage, and that a DIC policy "should be considered" to supplement it.^[3] The state legislature's insurance committee describes the FAIR Plan policy as one that satisfies lenders and protects against fire, with other coverages expected to come from a DIC wrap.^[4]

Step by step: how do you set up the pair?

Build the two policies in this order. Each step removes a gap that would otherwise show up at claim time.

1. 1. Get the FAIR Plan dwelling policy placed

   A broker registered with the FAIR Plan submits the application after the regular market has been checked. Menlo Insurance Services is a licensed California broker but is not a FAIR Plan registered broker, so we cannot place the FAIR Plan policy itself. We shop the regular and surplus lines market first and quote the DIC around a FAIR Plan policy you hold. Decide the options now: the dwelling limit, whether to add the extended coverage perils or vandalism, and whether to buy dwelling replacement cost. Without that option, the sample policy pays partial losses at actual cash value, meaning repair cost minus depreciation.^[5]

2. 2. Choose a DIC built to wrap the FAIR Plan

   The Department of Insurance publishes a list of insurers that sell a DIC "that complements a FAIR Plan policy." It lists 18 insurers as of September 2026. The department also says the list does not cover DIC products used to add perils to a regular homeowners policy.^[6] Ask the DIC carrier for its policy form before you bind, not just a quote summary.

3. 3. Match limits, deductibles, names and dates

   Put the same dwelling and contents limits on both policies. Choose deductibles you can afford to pay twice. List the same named insureds (including a trust, if the home is in one) and the same property address. Make both policies start on the same day, and set the DIC to renew on the FAIR Plan's renewal date.

4. 4. Confirm who pays living expenses after a fire

   The FAIR Plan dwelling policy includes fair rental value (Coverage D). The sample policy lets you use up to 10% of the dwelling limit for it, or buy a scheduled limit.^[5] Ask the DIC carrier in writing whether its loss of use coverage also pays when a FAIR Plan peril, such as fire, forces you out, or only for perils the DIC itself covers.

5. 5. Keep both policies on one calendar

   Two carriers send two renewals and two bills and can each nonrenew on their own schedule. Treat a DIC nonrenewal as seriously as a FAIR Plan one. If the DIC ends, the FAIR Plan policy stays in force, but your liability, theft and water coverage stops.

What does each policy pay?

Here is how the pair splits a typical home. The FAIR Plan column comes from the plan's published sample dwelling policy (form CFP 00 01). The DIC column shows what the FAIR Plan and the Department of Insurance say a DIC is for. A specific DIC form can be narrower or broader.

The FAIR Plan's smoke peril is written broadly. It covers sudden and accidental loss from smoke, "including airborne, windborne, or wind-driven combustion by-products or particulates such as carbon/soot/ash/char/debris." It excludes smoke from agricultural smudging, industrial operations and everyday household flames such as fireplaces and barbecues.^[5]

Limits work differently from perils. Residential FAIR Plan policies are capped at $3.3 million.^[4] A DIC fills gaps in the causes of loss covered, not in the fire limit. If rebuilding would cost more than the cap, you need separate excess property coverage above the FAIR Plan, which a broker may look for in the surplus lines market.

How do the two policies handle five common claims?

Each scenario below is an illustrative example built from the sample FAIR Plan policy and the stated role of a DIC. It is not a real claim, and it uses no real dollar amounts. Your two policy forms decide the real answer.

Two rules sit behind the table. First, the FAIR Plan's deductible applies to "all property covered hereunder in any one occurrence," but not to fair rental value.^[5] Second, when some other insurance covers the same loss on different terms, the FAIR Plan pays only the amount above what that other insurance owes, whether you can collect it or not.^[5] So a DIC that overlaps a FAIR Plan peril does not double your recovery. It changes the order in which the carriers pay.

What happens if one event hits both policies?

You open two claims. Suppose a pipe bursts and the water shorts a light fixture, which starts a small fire. The DIC carrier adjusts the water damage and the FAIR Plan adjusts the fire and smoke damage. Each carrier applies its own deductible and pays only for its own peril. Report the loss to both carriers right away, even if you are unsure which will pay. Late notice gives the carrier you left out a reason to deny.

Keep one record of the loss for both adjusters. Take the same photos, keep one list of damaged items and one set of receipts for living costs. Mark which items the fire damaged and which the water damaged. The FAIR Plan policy requires you to produce, among other things, information about other insurance that may cover the loss and records for any fair rental value claim.^[5]

Can the FAIR Plan and a DIC ever be replaced by one policy?

Possibly later. The Department of Insurance says a comprehensive residential FAIR Plan option is "currently in progress." It would add water damage, liability, theft and living expense coverage without a separate DIC.^[7] The legislature's committee paper notes that in December 2025 the Court of Appeal ruled the FAIR Plan is not required to offer expanded liability coverage.^[4] Until the plan says otherwise, you need both policies. The other exit is to leave the FAIR Plan for a single homeowners policy from a regular or surplus lines carrier. Our guide to high-risk homeowners insurance in California covers those routes.

This guide is for educational purposes. The claim scenarios are illustrative examples, not real claims, and they summarize the California FAIR Plan's sample dwelling policy and public Department of Insurance guidance. Your own FAIR Plan and DIC policy forms, declarations and endorsements control. Menlo Insurance Services is a licensed California insurance broker (license 6020106) and may earn a commission on policies it places. Talk to a licensed broker about your actual exposures.

The Bottom Line

A FAIR Plan policy and a DIC policy split one house between two carriers by cause of loss. Fire and smoke go to the FAIR Plan. Water, theft and liability go to the DIC. Each applies its own deductible, and neither covers the other's perils. The pair works only if both policies start on the same day and match on limits, names and address, and you have a written answer on who pays living expenses after a fire. When you are ready to add the DIC to a FAIR Plan policy you hold, start a DIC quote with Menlo.