Lawsuits Accuse Insurers of Colluding to Drop Coverage in Fire-Prone California Areas
Two lawsuits filed in Los Angeles allege that major home insurance companies have colluded to limit coverage in California communities at high risk for wildfires, forcing homeowners onto the state’s last-resort insurance plan. The lawsuits accuse insurers, including State Farm and 24 other companies that hold 75% of California’s home insurance market, of violating California’s antitrust and unfair competition laws.
The legal action claims that in 2023, these companies worked together to “suddenly and simultaneously” drop coverage or halt writing new policies in fire-prone areas. This decision affected neighborhoods like Pacific Palisades and Altadena, which were devastated by the January wildfires that destroyed nearly 17,000 structures and killed at least 30 people.
As a result, hundreds of homeowners were forced onto the FAIR Plan, which offers limited coverage capping at $3 million. This has left many underinsured and struggling to rebuild after the fires. One lawsuit was filed by a group of 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.
“Insurance is a product that homeowners hope never to need, but rely on for peace of mind in normal times and for critical help rebuilding after a catastrophe,” said Michael J. Bidart, who represents the homeowners. “The complaints allege that, 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 like January’s wildfires.”
The lawsuits come amid California’s ongoing insurance crisis, where companies are boosting rates, limiting coverage, or pulling out completely from regions susceptible to wildfires and other natural disasters due to climate change. In 2023, several major insurance companies either paused or restricted new business in the state, citing their inability to truly price the risk on properties as wildfires become more common and destructive.
The FAIR Plan is an insurance pool that all major private insurers pay into, and it issues policies to people who can’t get private insurance because their properties are deemed too risky. The plan has high premiums and basic coverage, designed as a temporary option until homeowners can find permanent coverage. However, more Californians are relying on it than ever, with over 555,000 home policies on the FAIR Plan as of March, more than double the number in 2020.
The California Department of Insurance stated that it is not involved in the suits but is focused on protecting consumers. “Californians deserve a system that works — one where decisions are made openly, rates reflect real risk, and no one is left without options,” said department spokesperson Gabriel Sanchez.
State Farm, the largest home insurer in California, and representatives from the American Property Casualty Insurance Association did not immediately respond to requests for comment.
The complaints also allege that insurers pushed policyholders onto the FAIR Plan because companies wouldn’t have to shoulder all financial responsibility to sustain the plan. When the state’s top insurance regulator ordered insurers to provide $1 billion to the FAIR Plan to help it pay out claims related to the LA wildfires, he allowed for half of the cost to be recouped from policyholders statewide. Another lawsuit was filed to block this cost-shifting regulation.
California is implementing new regulations to give insurers more latitude to raise premiums in exchange for issuing more policies in high-risk areas. This includes allowing insurers to consider climate change when setting prices and pass on the costs of reinsurance to consumers.
