In Sacramento, California, two separate lawsuits have been filed in Los Angeles against leading home insurance companies. These lawsuits claim that several major insurers have conspired to restrict insurance coverage in fire-prone areas, consequently compelling homeowners to rely on the state’s last-resort insurance plan, known for its limited coverage and high premiums.
The legal action implicates State Farm and 24 other insurers, who collectively manage 75% of California’s home insurance market, alleging that they participated in an illegal concerted effort infringing upon California’s antitrust and unfair competition laws. As detailed in one of the lawsuits submitted recently, it is alleged that these companies, in 2023, abruptly decided to either discontinue or stop providing new policies in regions susceptible to wildfires. Areas such as Pacific Palisades and Altadena, which were ravaged by January’s wildfires that demolished nearly 17,000 structures and claimed over 30 lives, are examples of these affected areas.
This abrupt policy shift has reportedly pushed numerous homeowners towards the state’s FAIR Plan, a fallback insurance scheme which offers basic coverage with limits up to $3 million. As a result, these homeowners are at a loss, underinsured, and in a challenging position to rebuild following the destructive fires, as described by the suit filed by homeowners who lost their residences. A second lawsuit includes all policyholders who transitioned to the FAIR Plan post-January 2023, when the alleged conspiracy took root.
Michael J. Bidart, representing the homeowners, stated that insurance is generally seen as a precaution that provides security during everyday circumstances, and offers essential aid when rebuilding post-catastrophe. Bidart criticized the insurers for supposedly colluding to maneuver these homeowners towards the FAIR Plan, thereby benefiting from elevated premiums while depriving policyholders of comprehensive coverage they were willing and able to procure before events like the devastating January wildfires.
This legal battle unfolds against the backdrop of California’s ongoing insurance crisis, marked by increased rates, reduced coverage, or insurance companies entirely leaving high-risk regions plagued by wildfires and other natural disasters. Several key insurance providers in 2023 paused or tightened new business endeavors within the state, arguing that it’s increasingly difficult to correctly assess risk as wildfires grow more frequent due to climate change.
The American Property Casualty Insurance Association, representing insurers across home, auto, and business sectors, declared its adherence to state antitrust laws, remaining vigilant of its members to ensure compliance. Chief legal officer Stef Zielezienski said these lawsuits lack foundation and their primary focus is addressing the hurdles within California’s insurance market.
The state Department of Insurance clarified its non-involvement in these lawsuits but emphasized its commitment to consumer protection. Department spokesperson Gabriel Sanchez expressed that Californians deserve a transparent system where rates are risk-reflective, ensuring no one remains without choice.
State Farm, California’s largest home insurer managing approximately a million policies, has yet to provide any comments on the matter. The FAIR Plan operates as an insurance fund that all major insurers contribute towards, designed as an interim measure until permanent coverage can be found, now serving more Californians than ever before. With over 555,000 home policies under the FAIR Plan as of March, the figures represent a significant increase from 2020.
These allegations further contend that insurers propelled policyholders into the FAIR Plan, allowing companies to avoid shouldering the full financial burden necessary to sustain the plan. Following an order from the state’s highest insurance official in February for insurers to contribute $1 billion to the FAIR Plan to manage LA wildfire claims, half of these costs could be recuperated from policyholders statewide. A separate lawsuit has been lodged to challenge this cost-shifting directive.
California is progressing with implementing regulations that provide insurers with broader latitude to raise premiums in exchange for increased policy issuance in high-risk zones. These new rules allow insurers to factor in climate change when determining prices and permit the passing on of reinsurance costs to consumers within California.