Two antitrust suits against major home insurers in California filed April 18, alleging a conspiracy to force homeowners onto the FAIR Plan insurer of last resort most likely will end with a settlement rather than a jury trial, according to an attorney and law professor who analyzed the case.
Several factors will affect the outcome, including the expense and magnitude of a discovery process for this case, the difficulty of proving conspiracy rather than just an unfair result of rational business decisions by the insurers, and the reluctance of defendants to allow the case to reach a jury, said Christopher Butler, adjunct faculty member at USC Gould Law School and counsel at Pillsbury Winthrop Shaw Pittman LLP.
"When you look at the list of insurers sued, there's a massive list of insurers. Imagine the number of employees. Discovery is going to be very expensive, and this is going to be a reason why the defendants are going to want to settle, especially if they're being targeted heavily," Butler said. "State Farm is the lead named defendant, so it's going to be very expensive for them. They're going to be searching a lot of files and depositions. There's going to be a lot of cost. Already they're looking at a lot of expense if they win. The best case scenario is if they get rid of this thing early."
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Hypothetically, if after discovery, the defendants like their position on the facts of the case, they would file a motion for summary judgment, Butler explained. Then, he said, "We no longer assume all the stuff in the complaint is true." However, if any documents found in discovery back up the complaint, a judge will not grant summary judgment, he added.
"Now you're left with the jury trial, and these insurers are going to be very uncomfortable going before a jury," Butler said. "The only thing is they probably won't find something with all of these companies. Some companies may be able to get themselves out -- one or two, especially the smaller ones, might have a successful motion for summary judgment. The case could fracture in that sense."
The first complaint, Ferrier v State Farm, includes plaintiffs who, because they were moved from private policies to the FAIR Plan, ended up underinsured in the January wildfires in the Palisades area of Los Angeles, and would have been covered for millions of dollars more under their previous policies. The second complaint, Canzoneri v State Farm, is by plaintiffs who were forced to pay exorbitant rates on the FAIR Plan for limited coverage.
Paragraph 182 in Ferrier states "The only plausible reason why the entire marketplace of purportedly competitive insurance suppliers, led by Defendants, would suddenly and
simultaneously refuse their products to a lucrative segment of the buyer market was the existence of an agreement to drive that buyer segment into even higher-priced FAIR Plan insurance policies that enabled the insurers to continue to profit from these consumers and the broader California insurance market while dramatically reducing the insured's coverages and the insurers' liability exposure. Defendants were willing to forgo competition between them for these consumers so that they could be forced en masse into the collectively controlled FAIR Plan, with its substantial benefits and illegal gains provided by it to them."
The number of FAIR Plan policies on residential properties in the Palisades increased from September 2023 to September 2024 by 85%, according to paragraph 202 in Ferrier.
In legal arguments, the defendants in the complaints are likely to point out that all insurance policies on the FAIR Plan have to be approved by the state's regulator, the California Department of Insurance, Butler noted. "The insurers are going to say they were complying with the regulatory regime and makeup. They submitted their plans. They got approved," he said. "What are you saying we did that was wrong?"
The insurance industry can also point out that the FAIR Plan inherently acknowledges global warming as a fact, backing up the industry's statements of increased fire risks that make it more difficult to provide homeowners coverage, Butler noted. "Normally, the point of suing corporate interests is perceived environmental damage," he said. "Now we have the corporate industry that's going to be using global warming as its big defense."
After the complaints were filed, the American Property Casualty Insurance Association (APCIA) issued this statement by Stef Zielezienski, its chief legal officer.
"APCIA has been sounding alarm bells about the deteriorating conditions in the California property insurance market for years with government officials and in the press. APCIA has, in California and throughout the states, consistently opposed the creation and expansion of state property residual plans such as the California FAIR Plan. Insurers are ultimately on the hook for the liabilities of such plans. As an industry trade whose mission is to serve consumers by promoting healthy private competitive markets, APCIA has a right and an obligation to voice those concerns to government, protected by the Noerr-Pennington doctrine. APCIA fully complies with all applicable anti-trust laws and has legal counsel monitoring every member call and meeting for that purpose. These suits defy logic, advance meritless claims, and we are going to focus on solving the challenges in the insurance market in California."
