California Homeowners Sue Insurers Over Alleged Collusion to Limit Wildfire Coverage
Two lawsuits filed in Los Angeles accuse major home insurance companies of colluding to limit coverage in California communities prone to wildfires, forcing homeowners onto the state’s last-resort insurance plan. The lawsuits allege that insurers, including State Farm and 24 other companies holding 75% of California’s home insurance market, participated in an “illegal scheme” violating California’s antitrust and unfair competition laws.
The legal action, filed last week, claims that in 2023, these companies worked together to “suddenly and simultaneously” drop coverage or stop writing new policies in fire-prone areas. Neighborhoods like Pacific Palisades and Altadena, devastated by January wildfires that destroyed nearly 17,000 structures and killed at least 30 people, were among those affected. This has left hundreds of homeowners with the FAIR Plan, which offers limited coverage capped at $3 million, leaving many underinsured and struggling to rebuild.
One lawsuit represents homeowners who lost their houses in the LA fires, while the other includes all policyholders who obtained the FAIR Plan after January 2023, when the alleged conspiracy began. Michael J. Bidart, representing the homeowners, stated, “Insurance is a product that homeowners hope never to need, but rely on for peace of mind… The complaints allege that, by colluding to push plaintiffs to the FAIR Plan, the defendants have reaped the benefits of high premiums while depriving homeowners of coverage they were ready to purchase.”
The lawsuits come amid California’s ongoing insurance crisis, where companies are raising rates, limiting coverage, or pulling out of regions susceptible to wildfires and other natural disasters due to climate change. In 2023, several major insurers either paused or restricted new business in the state, citing their inability to accurately price risks on properties as wildfires become more frequent and destructive.
The California Department of Insurance emphasized its focus on protecting consumers, stating, “Californians deserve a system that works – one where decisions are made openly, rates reflect real risk, and no one is left without options.”
The FAIR Plan, an insurance pool funded by major private insurers, issues policies to those unable to secure private insurance due to high-risk properties. With over 555,000 home policies as of March, more than double the number in 2020, it’s becoming a long-term solution for many Californians.
The complaints also allege that insurers pushed policyholders onto the FAIR Plan to avoid shouldering the full financial responsibility of sustaining the plan. When the state’s top insurance regulator ordered insurers to provide $1 billion to the FAIR Plan to cover LA wildfire claims, he allowed half of the cost to be recouped from policyholders statewide, prompting another lawsuit to block this regulation.
