LA homeowners & Advocates are Suing Insurance Companies for not Covering Damages from the Fires

 

The wildfires that swept through Los Angeles neighborhoods in this January took 30 lives and burned thousands of homes. Many homeowners say that insurance companies are telling them they aren't required to cover the damages.  There are two categories of insurers in Los Angeles. There are private insurers who are, in some cases, denying these claims because they are injecting a higher standard for determining whether, in fact, smoke damage has occurred. Then there is the California FAIR Plan, the insurer of last resort that is a private association of the private insurers. In 2017-2018, the FAIR Plan submitted to the California Department of Insurance (CDI) changes to its fire insurance policy, requiring that there be permanent physical changes to the property, which is contrary to state law.

The insurance commissioner has issued a bulletin that made clear that smoke damage is still a covered loss in California, that insurers have a duty under California law to reasonably investigate smoke damage claims. The problem is that the department ultimately doesn't decide the claims, and so people are forced to resort to go to court to have these claims paid.

So insurers have been asking and getting substantial rate increases since the 2018 Camp Fire, where they lost about $12 billion. State Farm, after the LA wildfires, filed for an emergency rate increase of 22% in California. That's been estimated to mean an additional $600, on average, per policyholder. And now we're waiting to see what the insurance commissioner will finally decide with regard to that rate increase.

Clashes over covering smoke damage have become a growing issue in states that have had devastating fires in recent years - including California, Colorado and Hawaii, said Amy Bach, executive director of United Policyholders, a public interest advocacy group. Home insurance companies have responded by looking for ways to limit their financial risks. Some major carriers have fled wildfire-prone areas. A 2022 report by the nonprofit Consumer Watchdog found that others were adding new limits to their coverage and restricting investigations into the scope of fire damage.

Consumer Watchdog has just sued the CDI and Commissioner Ricardo Lara to protect California homeowners from hundreds of millions in surcharges that may soon be on their insurance bills. The surcharges result from a decision reached by the Commissioner last summer to allow the insurance companies that comprise and operate the California FAIR Plan to pass-through costs to their policyholders when the FAIR Plan is forced to assess those companies for funds after a catastrophe.  

Read the April 13, 2025 NPR article.

Read the April 15, 2025 Consumer Watchdog article.

Read the April 14, 2025 Consumer Watchdog Petition/Complaint.

MD Insurance Administration Opens Virtual Disaster Center

 

Were you affected by recent severe weather events in Maryland? The Maryland Insurance Administration is hosting a Virtual Disaster Center, Tuesday, January 16th from 12-2 PM and 5-7 PM, to answer your questions and help you navigate the insurance process -- in a general session and in one-on-one breakout rooms. Registration is not needed. Please join us by Zoom or Dial-In: Tuesday, January 16th 12-2 PM or 5-7 PM Join us on Zoom or Dial-In, registration is not needed: Zoom: https://www.zoomgov.com/j/1603802898 Dial-in number: (646) 828-7666 Meeting ID: 160 380 2898

Questions? Contact Us Click here to complete a customer experience survey. STAY CONNECTED:

 Insurance Discrimination in Maryland

Maryland Finds Erie Insurance Illegally Rejected Baltimore Auto Customers in Minority Neighborhoods

On May 24th, the Maryland Insurance Administration (MIA) has ruled that Pennsylvania-based Erie Insurance racially discriminated by engaging in insurance “redlining” of predominantly Black neighborhoods in Baltimore. Through the Baltimore Insurance Network, four Baltimore-area insurance brokers had accused Erie in separate complaints filed in 2021: Baltimore Insurance Network LLC of Bowie, Ross Insurance Agency of Windsor Mill, and Welsch Insurance Group of Baltimore. All contracted or had contracted with Erie as agents to sell auto insurance policies. A fourth brokerage, Baltimore-based Burley Insurance, filed a similar complaint. The state’s ruling also said Erie penalized brokerage firms that failed to engage in discriminatory practices by reducing commissions or terminating contracts.

Kobi Little, NAACP Baltimore president, said the policies and practices exposed in the case are “prima facie evidence of institutional racism and structural inequity. This is corporate policy violence and it is a root cause of the physical violence and economic decay that we see in urban centers with significant Black populations. The impact is devastating in terms of the economic loss suffered by the firms serving urban markets and those in urban markets who are denied coverage. This is modern-day redlining and this case is just the tip of the iceberg.”

The MIA found that Erie unlawfully canceled or rejected business from brokers based on race or for other discriminatory or arbitrary reasons. It also found Erie unlawfully canceled or changed agreements for qualified applicants based on “adverse loss ratio,” a measure of an insurer’s profitability. The spokesman for Erie - with nationally has over 6 million home, auto, life, and business policies - disagrees with the findings. Erie has requested a hearing with the agency and expects to “defend our company against these claims.”

The state’s investigation discovered that because Erie’s auto insurance business in Maryland was not profitable, it kept its broad guidelines and set a secondary layer of eligibility standards that agents should use to reject qualified applicants (“front line underwriting”). The state is continuing a broader investigation of Erie’s market practices to determine they are part of a larger pattern of discrimination. 

The original complaints said Erie refused to underwrite policies based on a potential client’s race, ethnic origin, neighborhood and/or socioeconomic status. Baltimore Insurance and Welsch said that Erie urged them to not sell policies to people in Baltimore with “city sounding names.” Baltimore Insurance Network said it was told by an Erie branch manager to “place those people elsewhere, I don’t care where, just not with Erie. They don’t fit Erie’s appetite. Find better people.” That branch manager also told Baltimore Insurance that it was “devaluing the brand” by writing insurance policies for people in predominantly African American neighborhoods, and that the brokerage had to “understand Erie’s appetite.” Likewise, Welsch Insurance Group’s Thomas A. Welsch was told to get his business “from somewhere else.” Welsch’s contract with Erie was terminated in August 2019, citing poor underwriting practices and unacceptable policyholder service.

Baltimore Insurance said in the complaint it was told to reduce its sales by 30% by rejecting applicants who qualified for coverage and were mostly Black and living in inner-city neighborhoods. Erie required the brokerage to include criminal record checks for applicants, most living in low-income neighborhoods, though such checks were not part of Erie’s underwriting standards or the broker’s training. The attorney for Baltimore Insurance said in his client’s case alone, “these are hundreds if not thousands likely affected members of the public who Erie rejected based on discriminatory practices that the insurance administration has found to be unlawful.”

The MIA ordered Erie to calculate and pay the agencies all amounts in commission that had been withheld between December 2019 and May 2023 when Erie had notified the insurance administration it would restore commissions. Erie works with 13,500 licensed agents who serve customers across the company’s territory, Cummings said.

*****

Sources

Read the June 6, 2023 Baltimore Sun article.

Read the June 1, 2023 Baltimore Banner article.