Alameda County DA sues Farmers Insurance for fraudulent practices

OAKLAND, Calif. – Alameda County District Attorney Pamela Price has sued several companies within Farmers Insurance Group.

Price is suing them for violating state laws regarding how the company determines homeowners insurance rates, the cost of replacing the home, false advertising, unfair competition, and fraudulent business practices.

California’s insurance drought is now moving from the desert to the courtroom.

Price said insurers use pre-programmed computer formulas that deliberately undervalue the homes they insure.

“These insurance companies have utilized a software application that allows them, essentially, to defraud homeowners by charging them premiums for insurance that does not adequately insure,” said Price.

The software lowers the initial premium cost to induce customers to buy. Consumers believe they are adequately insured. But in reality, Price said, the software calculates excessively low replacement costs. When there are major losses, such as a wildfire, the payout is inadequate to rebuild.

“By offering these lower premiums, based on inaccurate estimates, the insurance companies gain a competitive advantage at the expense of proper coverage,” said Price.

Consumer Watchdog said it’s a direct violation of California law.

Harvey Rosenfield, of Consumer Watchdog, wrote the law.

“So, for them to turn around after the fact and say, ‘Hey, yeah, you don’t have enough coverage, and we think we’re not going to pay the claim in its entirety. That’s an outrage,” said Rosenfield.

That’s why Rosenfield is battling the insurance industry to forbid them from using new Artificial Intelligence rating software.

“At the end of the day, you walk away with far less than you’re entitled to under that policy. It’s a massive rip-off, accomplished by technology,” said Rosenfield.

“This is another form of software that, unfortunately, could be used to build upon the fraudulent software that we have already identified,” said Price.

Last month, Price sued auto insurers over the software they use to appraise the value of a car after it has been totaled. Price alleges that insurers and software developers designed the software to essentially undervalue the car, and refused to negotiate in good faith, which resulted in lower payouts.