Insurers accused of working together to end coverage in fire-risk areas of California

SACRAMENTO, Calif. — Two lawsuits have been brought forward in Los Angeles asserting that major home insurance companies have conspired to restrict coverage in California neighborhoods at high wildfire risk. This alleged collusion aims to push homeowners onto the state’s last-resort insurance program, which provides basic coverage but at high premiums.

One of the lawsuits, filed recently, claims that insurers, such as State Farm and 24 other companies dominating 75% of California’s home insurance market, engaged in an “illegal scheme” that breaches California’s antitrust and unfair competition regulations.

According to the lawsuit, these companies collaborated in 2023 to abruptly cease coverage or stop issuing new policies in fire-prone regions. This action affected areas like Pacific Palisades and Altadena, which were devastated in the January wildfires. The blazes destroyed nearly 17,000 structures and claimed the lives of at least 30 individuals. Consequently, many homeowners were compelled to join the FAIR Plan, which provides limited coverage capped at $3 million. As a result, these homeowners find themselves inadequately insured and facing challenges in rebuilding post-disaster, as highlighted in the lawsuit filed by a group of individuals who lost their homes in the LA fires.

The other lawsuit includes all policyholders who obtained the FAIR Plan after January 2023, when the conspiracy allegedly began, the suit says.

“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,” Michael J. Bidart, who represents the homeowners, said in a statement. “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 as California is struggling to rein in an ongoing insurance crisis, where companies are boosting rates, limiting coverage or pulling out completely from regions susceptible to wildfires and other natural disasters in the era of climate change. In 2023, several major insurance companies either paused or restricted new business in the state, saying they can’t truly price the risk on properties as wildfires are becoming more common and destructive in California due to climate change.

The state Department of Insurance said it is not involved in the suits but said its focus is 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,” department spokesperson Gabriel Sanchez said in a statement.

State Farm, the largest home insurer in California with roughly a million policies, didn’t immediately respond to requests for comment. Representatives from the American Property Casualty Insurance Association, the largest national trade association representing home, auto and business insurers, also did not respond for comment.

The FAIR Plan is an insurance pool that all the major private insurers pay into, and the plan then issues policies to people who can’t get private insurance because their properties are deemed too risky to insure. The plan, with high premiums and basic coverage, is designed as a temporary option until homeowners can find permanent coverage, but more Californians are relying on it than ever. There were more than 555,000 home policies on the FAIR Plan as of March, more than double the number in 2020.

The complaints also allege that insurers were pushing 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 in February 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 last week to block the cost-shifting regulation.

California has been in the process of implementing various new regulations to give insurers more latitude to raise premiums in exchange for issuing more policies in high-risk areas. That includes regulations allowing insurers to consider climate change when setting their prices and allowing them to pass on the costs of reinsurance to California consumers.