Alameda County DA Sues Home Insurance Companies Alleging Fraudulent Practices

Alameda County District Attorney Pamela Price Sues Farmers Insurance and Other Home Insurance Companies Alleging Widespread Scheme to Underinsure Homes in California 

OAKLAND, CA – Alameda County District Attorney Pamela Price announces that her Consumer Justice Bureau has sued multiple home insurance carriers comprising 15% of the home insurance market in California, including Farmers Insurance Exchange, alleging they operate a widespread scheme that knowingly and systematically underinsures homes in California.

The complaint alleges that these home insurance carriers provide consumers with inaccurately low replacement cost estimates, far less than the amount needed to rebuild their homes in the event of a disaster. This violates insurance regulations requiring any such communication to “include the expenses that would reasonably be incurred to rebuild the insured structure(s) in its entirety.”

To generate replacement cost estimates, these home insurance carriers utilize third-party software that considers very little information about the specific home to be insured, instead relying upon generalized features like the home’s zip code.  Thus, as alleged in the Complaint, the amount of insurance coverage purchased by homeowners is based on an estimate to rebuild a hypothetical home, not the actual home for which consumers are purchasing coverage. By avoiding the costs required to obtain detailed information about a home’s actual features and characteristics, home insurance providers offer lower premiums to increase their competitive position in the marketplace. However, this scheme also leads to systemic underinsurance in California, leaving homeowners without the means to replace what are often their most valuable assets.

The Complaint alleges that despite home insurance companies’ duty to deal in good faith with consumers, the home underinsurance scheme violates numerous California laws, including Insurance Code regulations and California’s Unfair Competition and False Advertising Laws. The lawsuit seeks civil penalties and injunctive relief prohibiting home insurance carriers from continuing their conduct harming homeowners across California.

“The relationship between an insurer and the homeowner is necessarily one of unequal
knowledge, expertise, information, and bargaining power, with homeowners depending on the insurance company to act in good faith,” said District Attorney Pamela Price. “When an insurance company provides a homeowner with a replacement cost estimate, that estimate must pertain to the homeowner’s actual home, not some hypothetical home that suits the insurance company’s bottom line.  Insurance companies must disclose all facts known only to them that are material to a homeowner’s policy, and they owe prospective clients 65 or older an additional duty of honesty, good faith, and fair dealing. This lawsuit will ensure that homeowners receive the information.

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