Alameda County District Attorney Sues Farmers Insurance Alleging Unfair Practices

Alameda County District Attorney Pamela Price is suing several related home insurance companies, alleging they rely on an algorithm that systemically undervalues the homes they insure.

The complaint — filed in Alameda County Superior Court last month — said the Farmers Insurance Group uses a third-party software that generates the replacement value of homes using generalized information about the properties, like their zip code, rather than gathering individualized data. As a result, customers may end up underinsured and unable to rebuild.

“Insurance companies have a duty of good faith and fair dealing, and that includes providing accurate replacement costs, estimates for insured property, and charging premiums that actually reflect the value of what the homeowner is entitled to receive,” Price said at a press conference on Tuesday.

The defendants include the Farmers Group Inc., Fire Underwriters Association and Mid-Century Insurance Company Co., which cover approximately 15% of the state’s home insurance market, according to the complaint.

In a statement, Farmers Insurance Group said the allegations in the complaint are incorrect. “We do not seek to provide low replacement cost estimates. We intend to discuss this with the DA’s office,” said Luis Sahagun, a spokesperson for Farmers Insurance.

Deputy District Attorney Alexandra Grayner, one of the attorneys on the case, said the rising rate of natural disasters in the state caused by climate change — and the subsequent influx of insurance claims — brought the issue to the attention of the office’s Consumer Justice Bureau.

The lawsuit comes on the heels of another suit from the office that makes similar allegations against auto insurers, including Progressive and the United Services Automobile Association.

“We know that the insurance industry — whether it’s auto or homeowners — their primary focus is to make money at the expense of homeowners and to pay out as little compensation as they can,” Price said. “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 problems.”

In California, some insurance companies choose not to offer homeowners insurance at all, and climate change increases the likelihood that homes will be damaged or destroyed in natural disasters.

“We certainly don’t want to encourage anyone to leave the state of California,” Price said. “But we absolutely have a duty to protect our residents, and we do not want insurance companies in California who essentially are not willing to comply with the law or who engage in fraudulent practices.”

The DA is seeking damages for Alameda County residents and injunctive relief that would require the companies to change how they calculate and communicate the value of the homes they insure.