Lawsuits accuse insurers of colluding to drop coverage in fire-prone parts of California

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SACRAMENTO, Calif. (AP) — Two lawsuits filed in Los Angeles allege major home insurance companies have colluded to limit coverage in California communities at high risk for wildfires and force homeowners onto the state’s last-resort insurance plan that offers basic coverage and high premiums.

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Insurers, including State Farm and 24 other companies that hold 75% of California’s home insurance market, were part of an “illegal scheme” in violation of California’s antitrust and unfair competition laws, according to one of the lawsuits, filed last week.

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The lawsuit said the companies worked together in 2023 to “suddenly and simultaneously” drop coverage or halt writing new policies in fire-prone areas, including in neighborhoods like Pacific Palisades and Altadena that were leveled in the January wildfires that destroyed nearly 17,000 structures and killed at least 30 people. That has forced hundreds of homeowners onto the FAIR Plan that offers limited coverage capping at $3 million, leaving them underinsured and now struggling to rebuild after the fires, says the lawsuit filed by a group of homeowners who lost their houses in the LA fires.

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

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“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.”

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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.

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The state Department of Insurance said it is not involved in the suits but said its focus is on protecting consumers.

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“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.

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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.