Alameda County sues Farmers Insurance, says it knowingly left homeowners underinsured

In a strongly worded complaint filed in Superior Court, the Alameda County district attorney said Farmers Insurance Group of Companies engages in business practices that harm consumers and violate California’s unfair competition and false advertising laws. 

The assertions stem from the company’s reliance on a software tool that can be inaccurate and leave homeowners unwittingly underinsured.

“The insurance companies gain a competitive advantage at the expense of proper coverage,” Price said at a news conference about the lawsuit on Tuesday. 

According to the complaint, Farmers, which holds 15% of the total market share in California, uses a software program called 360Value to estimate how much it would cost to replace homes should they be destroyed. The calculations are based on a number of factors, including building costs, square footage, year built and quality grade. 

The program’s accuracy depends on a thorough inspection of an individual property. But District Attorney Pamela Price says Farmers cuts corners.

By relying on out of date public information or generalized data based on ZIP code to populate fields in the 360Value tool, Farmers representative often generates estimates without performing inspections, the lawsuit contends. The tradeoff for efficiency is accuracy, with valuations lower than what the real cost of rebuilding would be.

Consumers unknowingly are basing their coverage decisions on the lower number, leaving them underinsured in the face of potential catastrophe. Meanwhile, Farmers saves money by avoiding inspections and is able to advertise lower premium rates to entice new customers, Price contends. She said the company’s written premium portfolio has increased by $44 million because of 360Value.

The complaint, filed on April 29, says Farmers knew the 360Value estimates were inaccurate and chose to pass them along to customers anyway. 

“Defendants knew or should have known these replacement cost estimates were untrue, deceptive, and misleading because they are based on faulty input data that was assumptive, outdated and not based on the specific features and characteristics of the insured structure,” the lawsuit says. It goes on to describe Farmers’ actions as, “immoral, unethical, oppressive, unscrupulous, and/or substantially injurious to consumer.”

A message to insurers

In an emailed response, Farmers denied the allegations and said the company intends to discuss the matter with Price’s office.

“The allegations in the Complaint are simply incorrect, and we do not seek to provide low replacement cost estimates,” Farmers said.

The lawsuit comes during a homeowner’s insurance crisis. Twelve of the state’s largest insurance providers have stopped or significantly curtailed their dealings in California, citing a strict regulatory system and the heightened risk of natural disasters.

Ricardo Lara, California’s insurance commissioner, made some concessions around rate applications and predictive modeling earlier this year, but the market remains difficult for homeowners.

Price believes this lawsuit, along with a similar one her office filed against auto insurance companies a couple of weeks ago, is a necessary step.

“We certainly don’t want to encourage anyone to leave the state, but we absolutely have to protect our residents,” she said.

She hopes the lawsuit will send a message to other insurance companies that use 360Value software.

“Until district attorneys and other law enforcement agencies take affirmative action to address the way in which consumers are being treated by insurance companies, we will continue to have these problems,” Price said.

“This lawsuit will ensure that homeowners receive the information they are entitled to receive before purchasing coverage so that they can adequately protect what are often their most valuable assets.”

---

Baykeeper sues Oakland recycler whose plant caught fire last summer