California Homeowners Sue Insurers Over Alleged ‘Illegal Scheme’
Hundreds of thousands of California homeowners are part of a class-action lawsuit against dozens of insurance companies, alleging they devised an ‘illegal scheme’ to boost profits by dropping customers and reducing coverage across the state. The lawsuit, filed in Los Angeles County, claims that by shrinking their presence in California, insurers conspired to force homeowners onto the state’s FAIR Plan, an expensive last-resort insurance program.
The private insurance companies, which each own a piece of the high-risk plan, have been able to charge higher prices while offering less comprehensive coverage, the lawsuit alleges. ‘By colluding to push plaintiffs and so many like them to the FAIR Plan, the defendants have reaped the benefits of high premiums while depriving homeowners of coverage that they were ready, willing and able to purchase to ensure that they could recover after a disaster,’ said Michael Bidart, an attorney for the homeowners.
The state’s largest insurers, including State Farm, Allstate, Farmers, Liberty Mutual, and CSAA, are listed as defendants. A separate lawsuit filed by the same attorneys on behalf of victims of the Los Angeles wildfires earlier this year makes similar claims, alleging that FAIR Plan policies are inadequate to cover the costs of rebuilding burned homes.
The FAIR Plan is a state-mandated, high-risk pool of private insurers for homeowners who can’t find traditional coverage. It offers bare-bones fire damage protection at two or three times the cost of standard insurance options. Over the past decade, the number of policyholders on the FAIR Plan has ballooned to more than 500,000 as insurers have dropped hundreds of thousands of homeowners in fire-risk areas across the state.
Insurers argue that shrinking their footprint in the state is a necessary response to California’s failure to update its insurance regulations in the face of rising building costs and the growing threat of climate change. The state is now phasing in new rules that would make it easier for companies to raise rates, hoping to convince them to write more policies and drop fewer homeowners.
The average annual cost of a typical home insurance policy in California is $1,439, below the nationwide average of $2,267. However, individual premiums can vary widely based on factors such as location, home size, and amount of coverage purchased.
Rex Frazier, president of the Personal Insurance Federation of California, described the lawsuits’ claims as an ‘outrageous lie’ that ignores the underlying issues of the insurance crisis. As the number of FAIR Plan policyholders has grown, so have concerns about its ability to pay out claims after a destructive wildfire, increasing liability for insurers.
The cases aren’t the only legal disputes that could impact the state’s insurance market. Consumer advocates recently sued the California Department of Insurance to stop insurers from charging homeowners a fee to cover emergency payments related to the Los Angeles fires.
