Lawsuits Target Top 25 Calif. Insurance Carriers, Allege Wildfire Coverage Collusion

California consumers and litigators are firing back at the state’s insurance companies and regulators for what they contend was a conspiracy to eliminate standard property policies and force homeowners to accept the state's beleaguered insurance plan of last resort, the California FAIR Plan.

Two lawsuits filed earlier this month on behalf of property owners impacted by the wildfires that devastated the Pacific Palisades, Malibu, and Altadena areas in January, allege the companies, including State Farm, Farmers, and the top 25 insurance companies, colluded to limit coverage in the fire struck areas, cancelled existing policies and refused to write new ones. Their actions, the complaints allege, forced property owners onto the FAIR Plan with its drastically lower coverage limits, leaving homeowners underinsured, resulting in many suffering massive uncovered losses from January's wildfire disaster.

"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," said Michael J. Bidart of Shernoff Bidart Echeverria LLP, one of the law firms bringing the suits.

FAIR plan had inadequate reserves

California insurance companies must fund the FAIR Plan proportionally according to their market share. At the time of the January wildfires, the plan had significantly inadequate reserves to cover a catastrophic wildfire – funding levels that were determined by the insurance companies as the only voting members of the FAIR Plan's Governing Committee. The California Department of Insurance agreed in 2024 to allow insurers to pass 50% or more of any added funds needed for coverage to customers in unaffected areas in the form of higher premiums, further incentivizing the insurers' push to force homeowners onto the FAIR Plan.

"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,” said attorney Stephen G. Larson of Larson LLP.

The suits come on the heels of several others alleging improper actions by Insurance Commissioner Ricardo Lara and the FAIR Plan following the Eaton and Palisades fires.

The homeowners in the two recent cases are seeking compensatory and treble damages, as well as an injunction preventing insurance companies from engaging in more anticompetitive behavior.

Insurers meet to talk about market issues and administration of the FAIR Plan. But the lawsuits and consumer groups contend the companies use those meetings to collude about limiting coverage in fire prone areas.

Concerted attempt cited

“This was clearly a concerted attempt by the entire industry to push people in high-risk areas to lower benefit policies, and at the same time keep collecting higher premiums from everyone else,” said Jamie Court, president and chair of the board of Consumer Watchdog.

An investigation by the Los Angeles Times lent credence to the accusations. The Times found that in the Palisades and Eaton fire zones, the FAIR Plan’s rolls shot up last year a combined 47%. From 2020 to 2024, the number of homes in both areas on the plan nearly doubled from 14,272 to 28,440. Four ZIP Codes in the fire-affected zones enrolled more than a third of their households in the state plan, the report said.

Insurance company representatives called the lawsuits “meritless” and said they divert attention from really solving California’s insurance crisis.

“We have been sounding alarm bells about the deteriorating conditions in the California property insurance market for years with government officials and in the press,” said Stef Zielezienski, chief legal officer for the American Property Casualty Insurance Association (APCIA), the primary trade association for home, auto, and business insurers. “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.”

Lawsuits 'defy logic'

Zielezienszki said the insurers comply 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.”

Meanwhile, Commissioner Lara’s provisional approval of a 22% emergency rate hike for State Farm, set to start in June, has been assailed as a quick fix “band-aid” that will not improve conditions in the state.

“State Farm has never claimed that it would start writing new policies in California if the rate hike is approved, so there is no reason to believe this increase would resolve the underlying issue,” said attorney Dan Veroff, of Merlin Law Group. “As new laws go into effect, it will force insurers to increase coverage in high-risk areas at much higher premiums.”

State Farm said it needs the added funds to boost capital and avert increasingly dire financial situations in the wake of the Los Angeles fires. The company 20% of California’s homeowners market with nearly three million policies.

The crisis in homeowners insurance is not relegated to California. An investigation last year by the U.S. Senate Budget Committee showed that since 2018, more than 1.9 million home insurance policies have been dropped nationwide, with every region in the United States affected. The Senate report also said, “the data confirm it is climate change that is driving increasing non-renewal rates, as the counties that are most exposed to climate-related risks, such as wildfires or hurricanes, are the counties seeing the highest non-renewal rates.”

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