Underinsurance, misunderstandings and negligence fuel California wildfire lawsuits

California homeowners policyholders have not been made whole after the Los Angeles wildfires in January. Those with State Farm policies have reported problems getting expected and necessary claims payments, leading to a probe by the state's regulator.

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The root of this discontent comes from how insurance is sold, explains Dan Veroff, policyholder counsel at Merlin Law Group. The firm represents homeowners policyholders in claims disputes with insurers. About 60% of the new cases the firm has taken on so far this year are related to the Los Angeles wildfires, according to Veroff. Some are about claims and some are about underinsurance.

Regarding State Farm, Veroff said, "They've eliminated the professional claim adjuster. And it's made the process very cumbersome. Folks are getting their claims switched from adjuster to adjuster to adjuster constantly. They're getting low balled. It's just a mess."

He added, "At least half of those that we've signed up from the Palisades and Altadena [fires] are underinsurance cases, broker negligence and insurance company negligence in the policy writing process."

Legal questions about underinsurance, especially following the L.A. fires, are complicated, as Veroff explained. "The law says it's the property owner's duty to get the right insurance," he said. At the same time, the law does not require agents or insurers to advise the homeowner on coverage. "They just have a duty to get what you ask for. So if you don't know what to ask for, they don't have to advise you," Veroff emphasized.

However, there are more nuances to the issue, he went on to explain. "If they do advise you and they misrepresent something, they're liable," Veroff said. "If they don't get what you ask for, they're liable. And if they hold themselves out as an expert then and then they don't advise you on something important, they can be liable. Otherwise, it's on the property owner."

Catastrophes like the L.A. fires and Florida storms magnify discrepancies between policyholders' expectations and what agents and carriers have presented and provided, according to Katherine Hempstead, senior policy advisor at the Robert Wood Johnson Foundation.

"There's also surprises, usually bad surprises about what's covered and what's not covered," she said. "Part of this would be to promote clarity and transparency. People are going to start looking at their homeowners coverage a lot more carefully, for sure, because it is coming up in people's awareness. People are learning more, but still, insurance policies are very opaque."

Underinsurance has to be addressed, Hempstead asserted. "In more and more states there are these systemic problems where risk is growing and risk is exceeding what people can pay," she said. "If you get into a situation where it's really widespread for people not to be able to protect themselves against financial ruin, it's very hard to have a successful society. The project for all of us is to really acknowledge that we need to reduce risk."