Wildfire Homeowners File Lawsuits Alleging Insurance Fraud

Los Angeles, CA – Like adding fuel to the fire, three large home insurers have been sued by policyholders who didn’t have enough coverage to rebuild their homes after the January wildfires. The wildfire lawsuits allege that three major home insurers systematically underestimated the replacement costs of homes. The insurance industry seemingly stokes profit margins by allegations of bad practices such as fraud, negligence, breach of contract and more.

The Lawsuits

Two separate lawsuits were filed last month in Los Angeles County Superior Court against USAA and two AAA-affiliated insurers, both seeking damages and reform of the insurers’ practices. In their lawsuit against AAA, the Fulker family received rebuilding estimates of at least $800 per square foot, but AAA calculated $380 per square foot. James and Lisa Fulker bought their 1,872-square-foot home in Malibu in 2020 with $713,000 in primary dwelling coverage and 125% extended replacement cost coverage.

Ethan and Marijana Alexander have sued USAA. Their Pacific Palisades home had $584,000 in dwelling coverage and a 25% home protection endorsement of $146,000, but they too don’t have adequate insurance to rebuild. USAA calculated the cost at $342 per square foot, not even close to rebuilding estimates from $850 to $1,000 per square foot.

What is even more disturbing is the accusation of systemic deception. According to San Antonio Express News, the lawsuit against USAA claims the company “has been systematically underestimating the replacement cost of its policyholders homes despite
telling them they were adequately insured.” It gets worse: after California’s previous wildfires, USAA underwent a “Targeted Market Conduct Examination” where regulators found “USAA would be required to make millions in additional payments due to pervasive
underinsurance.” USAA, however, claims it has paid nearly $1.4 billion to help members recover from their losses “and made payments on more than 90% of wildfire-related homeowners claims.” That may be so, but the lawsuits argue that making payments and making adequate payments are completely different things.

A spokesperson for USAA told the Los Angeles Times that that the company was reviewing the lawsuit and could not comment on specifics, but “USAA’s dedication to outstanding member service is widely recognized.” AAA declined to comment. USAA is also a defendant in a lawsuit filed by homeowners accusing insurers of colluding over the last several years to force them into the California FAIR Plan in order to profit from the higher premiums while reducing their liabilities in the event of a catastrophe.

California Insurance Crisis

READ MORE WILDFIRE LOSS LEGAL NEWS

These lawsuits further address a bigger insurance crisis in California, where wildfire claims have topped $12 billion and pressure mounts on state regulators. According to Consumer Affairs, the lawsuits underscore growing tensions in California’s homeowners insurance market, already reeling with escalating wildfire risks and insurer exits. The California Department of Insurance reports that 37,749 claims have been filed, and $12.1 billion in payouts have been made– so far.

An attorney for the plaintiffs stated to the Los Angeles Times that, “These families paid their premiums, trusted their insurers, and did everything right…But when disaster struck, they learned their coverage was little more than an illusion. These companies promised
peace of mind, but instead left their members stranded, homeless, and hopeless in the middle of an insurance system that failed them when they needed it most.”

As well as seeking financial compensation, the lawsuits want “accountability from insurers amid California’s escalating climate and coverage crisis and hope to spark industry-wide changes to how home values are assessed.”