The Dark Side of California’s Insurance Market
Homeowners in California are facing a growing crisis as surplus line insurers increasingly deny claims, leaving many financially devastated. Michelle Fuller, a retired homeowner in the Castro district, is one such victim. She bought her three-bedroom Victorian home in 2005 for $985,000, but after a renter caused extensive damage by flooding the house, her insurer, Sutton Specialty Insurance Co., refused to pay for the repairs, citing “uncovered wear and tear.”
The denial led to a protracted legal battle, and with no income from rent, Fuller couldn’t pay her mortgage, resulting in foreclosure. Her savings were depleted, forcing her to rely on food stamps and cash welfare. “Why didn’t they pay my rightful claim?” Fuller lamented. “Instead, they spend all this money fighting me.”
A Growing Trend of Claim Denials
New data reveals that Sutton Specialty rejected over two-thirds of claims on residential homes in California in 2024, far exceeding the national average denial rate of 37% for home insurance companies. Seven out of 11 surplus line insurers in California with significant premiums and claims reported alarming denial rates.
Surplus line insurers, not licensed in California, operate with less regulation, allowing them to hike premiums without limits and avoid contributing to the state’s insurer of last resort, the FAIR Plan. Bamboo Ide8, a managing general agent, underwrites policies for these insurers, including Sutton Specialty.
Lack of Oversight and Transparency
The complexity of affiliations between surplus line insurers and policy administrators like Bamboo makes it difficult for consumers to seek recourse. Bamboo’s founder, John Chu, claims his company is better at matching risk to price by collecting extensive data on properties. However, lawsuits accuse Bamboo of breaching contracts and inflicting emotional distress on policyholders.
Rita Kahlenberg’s case illustrates the issue. After her husband died, Bamboo and Catlin Insurance Co., a provider brokered by Bamboo, denied her claim for water damage, citing policy-excluded wear and tear, and then canceled her policy. Kahlenberg’s family believes the experience worsened her health decline.
Other homeowners, like Donnie Muldrow and Gary Neil and Angela Noriega, have faced similar struggles with Bamboo denying or partially covering their claims. In court filings, Bamboo has denied wrongdoing, citing policy exemptions and misrepresentations by policyholders.
Concerns About the Future of California’s Insurance Market
Consumer advocates warn that the rapid growth of surplus line insurers into homeowner coverage poses an existential threat to the FAIR Plan. Amy Bach, head of United Policyholders, criticizes the insurers for exploiting desperate homeowners and neglecting their claims obligations.
“They’re driving semi trucks through a loophole that was only supposed to be big enough for a pickup truck,” Bach said, urging regulatory action. The Department of Insurance has not responded to requests for comment, leaving homeowners to fight their cases in court.
For Michelle Fuller, the battle to save her home continues. “This has been my whole life,” she said. “I’ve lost everything. I have nothing to lose. I can’t walk away.”
