Home insurers accused of colluding to deny coverage in wildfire zones

In California, two lawsuits have been filed in Los Angeles against major home insurance companies, claiming they colluded to restrict coverage availability in areas particularly vulnerable to wildfires. This legal action comes on the heels of several recent California wildfires that caused extensive damage, including the January fires that resulted in nearly 17,000 structures being destroyed and at least 30 fatalities. The lawsuits argue that the insurers, including State Farm and others that have a significant share of the home insurance market, participated in an 'illegal scheme' in 2023 to simultaneously drop coverage or stop writing new policies in high-risk regions like Pacific Palisades and Altadena, severely impacting homeowners seeking to protect their properties. The homeowners affected by these policies have been forced onto the FAIR Plan, California’s last-resort insurance option that provides limited coverage and comes with high premiums. This situation left many homeowners underinsured and struggling to recover and rebuild after experiencing devastating losses due to wildfires. Michael J. Bidart, representing the plaintiffs in one of the lawsuits, emphasized that homeowners depend on insurance for security and support after catastrophic events. The allegations indicate that by pushing policyholders onto the FAIR Plan, insurers have avoided assuming full financial responsibility for the damages inflicted during recent wildfires. The ongoing insurance crisis in California has prompted insurers to either raise rates, limit coverage, or withdraw completely from regions susceptible to natural disasters, a trend exacerbated by climate change. In 2023, major insurance companies began to pause or restrict new business in California, citing the challenges of accurately pricing the risk posed by increasingly destructive wildfires. As of March, over 555,000 homeowners relied on the FAIR Plan, more than doubling the number of policies since 2020—a clear signal of the growing reliance on this safety net for those unable to procure typical insurance coverage. In February, the state’s top insurance regulator mandated insurers to contribute $1 billion to the FAIR Plan to assist with claims from the LA wildfires. However, this decision allowed insurers to recoup half of these costs from policyholders statewide, prompting additional legal challenges against this regulation. As this saga unfolds, the state Department of Insurance is focusing on protecting consumers while navigating the complexities of these lawsuits, which raise concerns about the insurance industry's practices amid the evolving climate crisis and its impact on vulnerable communities in California.