Lawsuits claim California insurers conspired to push homeowners onto FAIR Plan, exacerbating wildfire losses

By Isha Marathe

April 22 - (The Insurer) - Two lawsuits filed in Los Angeles said that top insurance companies colluded to limit their coverage in wildfire-prone areas of California, cancelled existing policies and refused to write new ones to force property owners onto the FAIR Plan, resulting in policyholders suffering uncovered losses from the January wildfires.

The law firms, Shernoff Bidart Echeverria and Larson, filed the suits on behalf of property owners in the Pacific Palisades, Malibu and Altadena areas against State Farm, Farmers and 23 insurers that hold 75% of the state's home insurance market.

State Farm and Farmers did not respond to The Insurer's requests for comment.

The lawsuits said that in 2023, the companies "conspired" to "suddenly and simultaneously" drop coverage in wildfire-prone areas, thereby forcing them onto the state's insurer of last resort, the FAIR Plan. This plan provides limited coverage compared to traditional insurance, payouts are capped at $3 million and its premiums on average are more than double the cost of a typical home insurance policy in the state.

As a result, homeowners were left uninsured come January 2025, when the Los Angeles wildfires destroyed nearly 17,000 structures and killed at least 30 people.

"California’s antitrust and unfair competition laws exist to address the very kind of conspiracy and collusion that the complaints allege the defendants engaged in, depriving homeowners of the competitive and adequate insurance products necessary to fully protect them from the losses sustained during this year’s fires," said Stephen Larson of Larson in a case update on April 18.

"We look forward to litigating these claims so plaintiffs can rebuild what was lost and also to end the group boycotts that we believe have tainted and upended the market for insurance in Los Angeles County.”

The plaintiffs are seeking compensatory and treble damages, as well as an injunction preventing insurance companies from engaging in further anticompetitive behavior.

The American Property Casualty Association, which urged the state to issue catastrophe bonds to stabilize the FAIR Plan in January, said on Monday that the lawsuits "def(y) logic and advance meritless claims."

"APCIA has been sounding alarm bells about the deteriorating conditions in the California property insurance market for years with government officials and in the press. APCIA has, in California and throughout the states, consistently opposed the creation and expansion of state property residual plans such as the California FAIR Plan. Insurers are ultimately on the hook for the liabilities of such plans," said Stef Zielezienski, APCIA chief legal officer.

"APCIA fully complies with all applicable antitrust laws and has legal counsel monitoring every member call and meeting for that purpose. These suits defy logic, advance meritless claims, and we are going to focus on solving the challenges in the insurance market in California.”

The January wildfires put additional strain on an already distressed property insurance market in California. The state has been in a back-and-forth with State Farm over the insurer's request for an emergency rate hike in response to the losses from the event.

For instance, in March, State Farm General Insurance Company warned California Insurance Commissioner Ricardo Lara that it may have no choice but to continue scaling back its position in California if its emergency rate request was not approved.

By the end of March, Lara approved the California FAIR Plan’s filing to increase commercial property coverage limits to $20 million per building, with a maximum limit of $100 million per location.