Los Angeles County has sued State Farm over its handling of wildfire claims. Here is what the case says, what the insurer says back, and the coverage questions every California homeowner should be asking right now.
Los Angeles County announced Monday that it had filed suit in L.A. County Superior Court against State Farm General, after hundreds of victims of last year's Palisades and Eaton fires complained that their claims had been delayed, denied or underpaid.
The allegations have not been proven and State Farm strongly disputes them. But the case has put a question in front of every homeowner in this state, and it is a question worth answering before you ever need to file anything. If you had a total loss tomorrow, would your policy actually pay enough to rebuild?
County officials said their investigation into the complaints found unreasonable delays in processing claims along with what they described as systematic underpayments. Their filing alleges that State Farm engaged in illegal and deceptive business practices that kept fire victims from receiving what they were entitled to under their policies.
Three specific claims stand out for homeowners:
• Suppressed smoke damage. The county alleges the insurer illegally suppressed smoke damage claims. Many families say the insurer refused to test their homes for toxins left behind by smoke.
• Lowballed loss estimates. The suit alleges the company drastically understated financial losses on destroyed and partially damaged homes. One family said they were offered $11,000 to remediate a five bedroom house, which they put at roughly 13 percent of the actual cost.
• Incomplete cooperation. County officials said State Farm failed to substantially comply with their requests for documents and information during the investigation.
The lawsuit asks the court to require full restitution to policyholders and civil penalties for violating state law. Supervisor Kathryn Barger, who represents Altadena, put it plainly at the Monday news conference: survivors are just asking for what is right.
Joy Chen, executive director of Every Fire Survivor's Network, said that for many of these families insurance had become a barrier to recovery rather than a safety net. Nineteen months after the fires, she said, families are still suffering.
Company spokesman Bob Devereux said State Farm strongly disagrees with the county's characterization of its wildfire claims response and will respond through the legal process.
By the company's account, State Farm has paid more than $6.2 billion on claims tied to the two fires, including roughly $1 billion for damage from smoke, and about 78 percent of claims have been closed. Devereux said the company continues working directly with customers whose claims remain open, evaluating each one on the facts of the loss and the coverage in the policy.
For scale: State Farm is California's largest private insurer, with more than 2.8 million residential and commercial policies in force. The California Department of Insurance reports that 11,300 State Farm policyholders filed homeowner claims arising from last year's L.A. County fires.
A claim dispute after a total loss is the worst possible moment to learn what your policy actually says. The time to read it is now, while nothing is on fire.
Fire exposure is not a Los Angeles problem. It is a San Diego problem, an Arizona problem and a Colorado problem, and the carrier response question travels right along with it. Whatever the court concludes about State Farm, the pattern the county describes is the pattern homeowners fear everywhere: a policy that looked adequate on paper and came up short at the counter.
Here are the five gaps that show up again and again after a wildfire.
1. Dwelling limit versus real rebuild cost. Construction labor, materials and permitting have all moved faster than most policy limits. Ask your carrier how your Coverage A figure was calculated and the last time it was updated.
2. Extended replacement cost and building code upgrade coverage. Do you carry these endorsements, and at what percentage above your dwelling limit? Rebuilding to current code on an older home can consume a large share of a settlement all by itself.
3. Smoke, soot and toxin damage. This is the fight in the L.A. cases. Know what your policy says about testing and remediation, and if you ever have a loss, get independent testing done and documented.
4. Loss of use and additional living expense. Check both the dollar cap and the time cap. Nineteen months of displacement is not a hypothetical anymore.
5. Personal property. Replacement cost or actual cash value, and do you have a current inventory? Walk every room with your phone camera, narrate what you own, and store the video off site.
This is the piece homeowners consistently miss, and it is the piece we spend the most time on with clients. Your loan does not disappear when the house does.
• The mortgage survives the loss. Payments keep coming due whether or not the claim has settled.
• Insurance proceeds on a financed home are usually issued jointly to you and your lender, then released by the servicer in draws as the rebuild progresses. Plan for that timing, not for a single check.
• If a policy lapses or is cancelled, the servicer can place its own coverage. It is expensive and it protects the lender, not you.
• Premium increases flow straight into your escrow account and change your monthly payment.
• Rebuild financing, renovation loans and the option to sell the lot instead of rebuilding all have very different tax, timing and qualifying consequences.
Underinsurance turns a covered loss into a cash shortfall stacked on top of a loan you still owe. That is a mortgage problem as much as an insurance problem, which is exactly why we look at both together.
• Pull your declarations page and actually read Coverage A, B, C and D, plus every deductible, including any separate percentage deductible for wildfire.
• Ask your property and casualty agent, in writing, what it would cost to rebuild your home today.
• Confirm whether you carry extended replacement cost and building code upgrade endorsements.
• Record a video inventory of the interior and store it in the cloud, not in the house.
• If you are in a claim now, keep a file with every call, date, name and a written summary sent back to the adjuster.
• If you are in a dispute, you can file a complaint with the California Department of Insurance, and you may want a licensed public adjuster or an attorney in your corner.
• Look at the whole protection picture at once: property, liability, life and income.
Our Suite of Services model exists because these pieces were never separate to begin with. The mortgage, the property, and the coverage that protects both sit in the same plan. We do not write homeowners policies, and when a question belongs with your property and casualty agent we will say so directly. What we will not do is let a client close a loan without understanding what their coverage does and does not do on the worst day.
If you want a second set of eyes on how your coverage lines up against your loan balance and your rebuild cost, the Park Place Collective Team is glad to walk through it with you.
This article is general information only. It summarizes public reporting on a pending lawsuit in which the allegations have not been proven in court, and it is not legal advice, insurance advice, or a recommendation for or against any insurer. Park Place Collective does not write property and casualty insurance. For claim disputes, consult a licensed public adjuster or an attorney.
PARK PLACE COLLECTIVE
Email jcosta@parkplacefg.com | Office 619-990-7552 | Cell 646-245-7856 | NMLS 2571108 | DRE 02230476 | DFPI 60DBO-212395
Joe Costa NMLS 113396, DRE 01410823 | Marni Costa DRE 01858497 |
