Two new lawsuits filed in Los Angeles accuse major home insurance providers in the state of colluding to limit the coverage they offer homeowners in regions of California where there is an elevated risk of wildfires. As a result, this has forced homeowners to turn to the state's FAIR Plan, an insurance plan with high premiums and basic coverage.

One of the lawsuits was brought forward by a group of homeowners who lost their homes in this year's wildfires. The other lawsuit represents homeowners who received coverage through the California FAIR (Fair Access to Insurance Requirements) Plan after January 2023.

The FAIR Plan is designed as a temporary insurance policy program that homeowners who are at high risk can turn to if they are unable to get coverage for their homes. Major insurance providers pay into this program, and this pool of funds is used to help individuals who are covered under the FAIR Plan.

There are obvious drawbacks, however. For example, the plan has high premiums and offers homeowners only basic coverage. Coverage is also capped at $3 million. Despite being a temporary option, now more than ever, residents in the state are relying on it as their only form of coverage.

In 2020, the number of home policies under the program more than doubled. Today, those numbers have nearly quadrupled. There are over 555,000 policies under this program to date.

Among the insurance companies named in the lawsuit were State Farm and 20 other companies. Together, these companies control over 75% of the insurance market in the state. Their collusion was a violation of the state’s antitrust and unfair competition laws, the complaints alleged.

The lawsuits explain that starting in 2023, the insurance companies "suddenly and simultaneously" came together to drop current policyholders who lived in fire prone areas.

Among these neighborhoods were residents in Pacific Palisades and Altadena. Both these communities were devastated by the January wildfires that destroyed 17,000 residential and commercial buildings. Along with dropping existing customers, the insurance companies stopped writing new policies for residents who live in these areas.

Both lawsuits argue that after homeowners were dropped and were forced to turn to the FAIR Plan, they suffered significant losses because they found themselves underinsured. According to recent data from Realtor.com, the median listing home price of a house in the Pacific Palisades was roughly $6.2 million, nearly double the coverage offered under the FAIR Plan.

By forcing families into this state home insurance option, residents were left with limited options when it came to being able to afford rebuilding, as many homeowners say they were left uninsured and vulnerable when disaster did strike.

Michael J. Bidart is the attorney representing the homeowners in one of the lawsuits. He shares, "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." His statement representing his clients goes on, "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."

As wildfires throughout the state continue to be an unpredictable and difficult to manage natural disaster, homeowners and businesses have remained uncertain about their future in the state.

In the background, the state is continuing to struggle with helping residents find affordable home insurance coverage. With few insurance companies to choose from, some residents are seeing inflated home insurance coverage rates, while others are struggling to find a private company that will provide them coverage in the first place.

While the state Department of Insurance is not involved in the lawsuits, they have issued a statement that explained in part, "Californians deserve a system that works — one where decisions are made openly, rates reflect real risk, and no one is left without options."