Insurer intentionally underestimated rebuilding costs to capture market share
LOS ANGELES—Larson LLP and Shernoff Bidart Echevarria LLP filed a complaint in Los Angeles County today on behalf of seven families who lost their homes in California’s wildfires this year, alleging a scheme by the state’s largest insurer, State Farm, to systematically underinsure properties in a bid to sell more policies and accrue market share.
The lawsuit alleges that State Farm deliberately underpriced homeowners insurance policies through the misuse of its estimator program, which is used to generate reconstruction cost estimates and set annual premium prices. By inputting false or overly general data about a policy owner’s home, State Farm pushed the assumed cost of reconstruction significantly below a reasonable estimate in order to offer more attractively-priced policies and reduce its exposure to insurance losses.
Over the last several years, State Farm has embarked on an aggressive campaign to capture a larger share of the California insurance market, earning $2.7 billion in premiums from California consumers in 2023—a 70 percent increase in just five years. By artificially suppressing the coverage limits of its customers, State Farm protected its own balance sheet and significantly undermined policyholders’ ability to rebuild their lives after a total loss. In the aftermath of the LA wildfires, today’s plaintiffs found the cost of rebuilding their homes far exceeds the coverage limits set by State Farm.
State Farm’s scheme exploits an imbalance in information and experience that disadvantages customers; most homeowners do not have the knowledge or context needed to accurately assess the cost of rebuilding their home, and rely on the expertise of their insurer to accurately determine sufficient coverage.
“Most homeowners never expect to need to cover a total loss, and so never find out if the limits set by their insurance company are adequate,” said Michael J. Bidart of Shernoff Bidart Echeverria LLP. “These homeowners are confronting the unfortunate fact that the coverage set for them was never intended to fully rebuild their lives.”
“Consumers have a reasonable expectation that their insurance companies are using the tools that determine coverage with at least ordinary skill and care,” added Stephen G. Larson of Larson LLP. “State Farm’s deliberate misuse of their estimator program exposes both individual homeowners and the California market as a whole to greater liability at a time of significant insurance instability.”
California law holds insurers liable for underinsurance if they misrepresent the scope of the coverage offered or undertake the responsibility of setting sufficient policy limits. The homeowners represented in the complaint seek to have their policies adjusted to reflect the coverage they understood they were receiving, as well as compensatory and punitive damages.
Larson LLP and Shernoff Bidart Echeveria LLP are also representing homeowners in two separate complaints against the major California insurers, alleging a group boycott that funneled homeowners in high fire-risk areas into the California FAIR Plan, the state’s insurance plan of last resort.
About Larson LLP
Larson LLP is an elite litigation firm committed to achieving success in any courtroom. A fierce advocate for our clients, Larson LLP attorneys litigate complex civil cases, including insurance coverage disputes related to other recent California wildfires.
About Shernoff Bidart Echeverria LLP
Shernoff Bidart Echeverria LLP is a leader in protecting policyholders from insurance company abuse. The firm has been protecting the rights of insurance consumers, both individuals and businesses, for 50 years and has contributed greatly to legal precedent requiring insurance companies to act in good faith.
Contact
Doreen Filice Gabel
dfilicegabel@larsonllp.com
213-205-2950
