Politicians and Insurance Companies Subject Homeowners to Abusive Claims Practices

May 28, 2001

By AHRC News Services
Copyright 2001 AHRC News Services

Farmers Insurance is in the hot seat again. On November 24, 1998, T. Simonian filed a class action suit against Farmer's in Los Angeles Superior Court ( Case # BC 201333). The suit alleges that Farmers wrongfully withheld a percentage of what they paid to settle claims covered by personal lines residential insurance policies – estimated by an outside source to be about 20%. Hence, on a $10,000 claim, Farmers would withhold approximately $2,000 until it had been provided with proof that a general contractor had done the repairs. Farmers argued that, as the withheld amount represented the overhead and profit of the general contractor, Farmers did not have to pay this unless a general contractor had performed the work.

The plaintiff argued that this practice is not disclosed to policyholders, and that overhead and profit is part of the actual cash value of a loss that is covered by the policy. Hence, plaintiff argued that Farmers' practice of withholding payment for overhead and profit until proof has been provided that a general contractor was used to perform the covered repair work is wrongful, violates the terms of the policy and applicable law.

Farmers denies these allegations but has agreed to settle and compromise this litigation