Lawsuits allege Calif. insurers colluded to reduce coverage in wake of wildfires

A group of California property owners affected by the January wildfires filed class-action and antitrust lawsuits against the major insurers in the Golden State, alleging they participated in a scheme to restrict coverage in high-risk fire zones, forcing policyholders to seek coverage from the state's insurer of last resort.

The lawsuits, filed in the Los Angeles County Superior Court, allege that State Farm General Insurance Co., Farmers Insurance Group of Cos. and the top insurers in California violated the state's antitrust and unfair competition laws, according to a news release from Larson LLP, one of the firms representing the homeowners.

The firm said the violations resulted from "a conspiracy which eliminated existing and standard property policies and forced homeowners to accept, as their only available coverage, the state's insurance plan of last resort, the California FAIR Plan Association."

State Farm, Farmers, The Travelers Cos. Inc. and The Allstate Corp. did not respond to requests for comment.

Hilary McLean, a spokesperson for the FAIR Plan, said in an email to S&P Global Market Intelligence that "while the California FAIR Plan is not named in these lawsuits, the FAIR Plan does not comment on active litigation."

The American Property Casualty Insurance Association (APCIA), in a statement from Chief Legal Officer Stef Zielezienski, said the lawsuits "defy logic" and "advance meritless claims."

Zielezienski said that APCIA has "consistently opposed the creation and expansion of state property residual plans such as the California FAIR Plan," adding that "insurers are ultimately on the hook for the liabilities of such plans."

One lawsuit — Todd Ferrier et al. v. State Farm Group et al. — alleges that homeowners found themselves underinsured "with pricier policies providing far less coverage for properties they had previously been able to adequately insure." It further alleges that the gap between their actual property losses and what the FAIR Plan covered "amounts to millions of dollars that would have been covered under their previous, dropped policies."

The other suit — Anthony Canzoneri v. State Farm Group et al. — was filed "on behalf of a class of insurance consumers who were forced to pay exorbitant rates for inferior coverage after the insurers' misconduct forced them to obtain limited coverage from the FAIR Plan," according to the Larson news release.

State Farm General, a subsidiary of State Farm Mutual Automobile Insurance Co., incurred an estimated $7.6 billion in catastrophe losses from the fires that broke out Jan. 7, according to an S&P Global Market Intelligence analysis, while Travelers had an estimated $1.7 billion in losses. Berkshire Hathaway Inc. had $1.3 billion in losses, while Liberty Mutual Holding Co. Inc. had $1.2 billion and Allstate had $1.007 billion.

State Farm General is awaiting final approval on emergency rate increases filed with the California Department of Insurance. The insurer is asking for a 17% increase in homeowners rates, a 15% rate increase for tenants/condominium unit owners and a 38% increase for rental dwellings/landlords.

All the requests were provisionally approved by Insurance Commissioner Ricardo Lara on March 14. Final approval depends on a decision from Karl-Fredric Seligman, the administrative law judge who presided over a special rate hearing held between April 8 and April 10.