As wildfires devastate parts of Los Angeles, destroying thousands of homes and businesses, renewed attention has been drawn to State Farm’s 2023 decision to reduce policyholders in wildfire-prone areas. The move, along with similar actions by other insurers, has raised questions about its legality and the recourse available to affected homeowners.
State Farm’s Stance on Non-Renewals
In March 2024, State Farm CEO Denies Hardin explained the decision in a letter to California Insurance Commissioner Ricardo Lara. Hardin cited the company’s strained finances, stating that raising rates alone was insufficient to mitigate their risk exposure.
“We have been reluctant to take this step, recognizing how difficult it will be for impacted policyholders. … We are striving to minimize the impact of the necessary actions,” Hardin wrote.
A State Farm spokesperson emphasized the company’s focus on assisting customers during the wildfires, stating, “Our number one priority right now is the safety of our customers, agents, and employees impacted by the fires.”
Insurers Across California Reduce Coverage
State Farm is not alone in scaling back coverage. According to the California Department of Insurance (CDI), seven of California’s top 12 insurers have cut coverage over the past four years. Commissioner Lara has introduced new regulations aimed at ensuring a more reliable insurance market for communities most vulnerable to wildfires and climate change.
Legal Considerations: Expert Opinions
The legality of non-renewals has been a topic of debate among experts, with opinions varying on whether State Farm or other insurers could face legal challenges from affected policyholders.
Dave Jones: State Farm Followed the Law
Dave Jones, director of the Climate Risk Initiative at UC Berkeley, clarified that State Farm did not cancel policies but chose not to renew them—a distinction allowed under laws in every U.S. state.
Gary Kwasniewski: Limited Legal Recourse
Gary Kwasniewski, an insurance law expert, explained that homeowners typically have little legal recourse unless they can prove the non-renewal violated specific statutory protections.
“The law usually cannot force an insurance company to undertake the risks of offering insurance unless they voluntarily agree,” he said.
Lars Powell: Actions Likely Legal
Lars Powell, an insurance policy analyst, stated that State Farm’s actions appear legal, provided they adhered to policy provisions and applied underwriting standards objectively.
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Carmen Balber: Questions About Transparency
Carmen Balber, an insurance advocate, raised concerns about the lack of explanation provided to many homeowners. She called for legislation ensuring Californians who meet fire-prevention standards have the right to purchase insurance.
Joel Laucher: Exceptions May Apply
Joel Laucher, a former insurance regulator, noted that while most non-renewals comply with the law, specific cases—such as incorrect aerial images used as justification—could warrant legal action.
Protections for Policyholders
California law mandates that insurers provide a 75-day notice with specific reasons for non-renewal. Additionally, policies cannot be non-renewed for one year in and around declared fire emergency areas.
The California Insurance Code requires underwriting standards to be objective, risk-related, and non-discriminatory. Policyholders who believe they were unfairly non-renewed can file complaints with the CDI or consult legal counsel for potential damages.
Moving Forward
While State Farm’s actions have drawn criticism, many homeowners affected by non-renewals have reportedly secured coverage elsewhere. However, the debate underscores the need for a balanced approach to protecting both homeowners and insurers in wildfire-prone areas.
Commissioner Lara emphasized the importance of creating a sustainable insurance market, stating, “Californians deserve a reliable insurance market that doesn’t retreat from communities most vulnerable to wildfires and climate change.”
