California Homeowners Insurance Lawsuits Highlight Market and Regulatory Challenges

Two class action lawsuits filed in California allege that major homeowners insurance carriers conspired to limit coverage, forcing consumers to rely on the California FAIR Plan, a state-backed insurer with restricted policies. Insurers representing about 75% of the California homeowners insurance market are accused of canceling policies and refusing new ones in high-risk areas such as Pacific Palisades, Malibu, and Altadena.

The lawsuits claim this withdrawal led to underinsured homeowners during the Los Angeles wildfires in January, with some losses going uncovered due to the FAIR Plan's limited coverage. One suit contends that consumers paid higher premiums for FAIR Plan policies while receiving diminished coverage compared to their original insurance. The American Property Casualty Insurance Association (APCIA) has rejected these allegations, emphasizing its compliance with antitrust laws and asserting that the lawsuits lack merit.

APCIA highlights its longstanding efforts to alert authorities about the challenges facing California's property insurance market, including concerns over the FAIR Plan expansion. California's property insurance market has seen instability with insurers reducing coverage or exiting due to wildfire risk, regulatory pressures, and rising claims costs. In response, recent legislation— the FAIR Plan Stabilization Act—has passed, aiming to strengthen the FAIR Plan's financial resources by enabling bond issuance or credit lines. This development reflects ongoing regulatory attempts to stabilize homeowners insurance availability amid increased wildfire threats and market withdrawals.