Farmers Insurance lawsuit: Homeowners allegedly underpaid with ‘inaccurate prices,' Alameda Co. DA says

( KRON ) – Alameda County District Attorney Pamela Price filed a lawsuit against Farmers Insurance and other insurance companies on Tuesday, alleging the companies ran a scheme of underinsuring homes across California.

The companies being sued comprise over 15% of the home insurance market in California. Price alleges that homeowners get lowballed with "inaccurately low" replacement cost estimates for their homes, "far less" than the amount needed to rebuild homes in the event of a disaster, the DA said in a statement.

"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," Price said

The alleged scheme violates insurance regulations by not including "the expenses that would reasonably be incurred to reveal the insured structures in its entirety."

To generate replacement cost estimates, home insurers would use third-party software that "considers very little information," Price said. Instead, the software would rely on generalized features like the home's zip code. The lawsuit alleges the third-party software gives estimates of a "hypothetical home, not the actual home for which consumers are purchasing coverage," Price said.

The complaint also alleges that this leads to "systemic underinsurance" in California, leaving homeowners without the means to replace what is often their most valuable assets.

The complaint alleges that despite home insurance companies' duty to deal in good faith with consumers, the home insurance scheme violates numerous California laws, including insurance code regulations and the state's Unfair Competition and False Advertising Law.

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," Price continued," 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."

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