When “Bad Faith” Smells Like Strategy – The Quiet Shift in California’s Homeowners Insurance Market

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In recent months, a disturbing trend has begun to surface in California’s already fragile homeowners insurance landscape. While much of the media coverage has focused on major insurers exiting the state or pausing new policies altogether, there’s a more subtle — and arguably more troubling — phenomenon at play: insurance companies that continue to operate in California but are quietly dropping existing policyholders under dubious pretenses.

These non-renewals are not being driven by actual wildfire zones or objective underwriting data. Instead, some insurers are issuing vague or plainly false justifications for denying renewal, forcing homeowners into vulnerable positions — all while still actively writing policies elsewhere in the state.

A Case That Raises Eyebrows

One such case involved a client whose insurer cited a seemingly random property maintenance issue as the reason for non-renewal — something that, upon further inspection, didn’t actually exist. Even more troubling, the insurer had to dig deep and stretch their interpretation of the facts in order to justify the claim. The homeowner could easily disprove it with current documentation and photographic evidence, but the carrier remained unmoved.

The situation raised a red flag: Why would an insurer take the time to fabricate a weak reason to cancel a policy when the actual risk hasn’t changed?

The Bigger Picture

The answer may lie in the industry’s complex relationship with California’s regulatory environment and risk exposure. Since 2023, companies like State Farm, Allstate, Farmers, and USAA have either stopped writing new policies or severely limited their exposure in the state due to rising claims costs, climate risks, and constraints on how quickly they can raise premiums.

But rather than pull out of the state entirely — a move that would trigger intense regulatory scrutiny — some insurers may be engaging in a more targeted strategy: trimming their most “cost-sensitive” or potentially unprofitable policyholders using highly subjective criteria.

This is particularly concerning because it can appear, on paper, as routine risk management. In reality, it may function as a way to manage their portfolios without drawing headlines or regulatory attention.

What Constitutes “Bad Faith”?

In insurance law, “bad faith” refers to situations where an insurer acts dishonestly or unfairly toward its policyholder, such as denying coverage without a legitimate reason, delaying claims processing, or misrepresenting policy terms. While it’s not always clear-cut, issuing false or misleading non-renewal notices could potentially fall under this category — particularly if the insurer has a pattern of such behavior.

That said, proving bad faith is difficult. California insurance companies are required to give a reason for non-renewal, but they’re not obligated to renew a policy unless governed by certain exceptions (like protected classes, disaster response timelines, or FAIR Plan eligibility). Still, when insurers manipulate facts to justify a drop, it’s more than frustrating — it undermines trust and exposes homeowners to market volatility.

Who’s Being Affected?

The homeowners most at risk tend to fall into one or more of these categories:

  • Homes near but not in designated high-risk fire zones
  • Older homes, especially those with outdated electrical or roofing systems
  • Secondary or rental properties, where occupancy may be part-time
  • Clients with previous claims, even if unrelated to the cancellation reason

Interestingly, some homeowners being dropped are located in suburban, low-risk areas with no significant claims history — suggesting the issue isn’t just about fire risk or property condition, but possibly financial exposure or portfolio reshuffling on the insurer’s side.

What Can Homeowners Do?

If you or a client finds themselves on the receiving end of a questionable non-renewal, there are several steps worth taking:

  1. Request Documentation: Ask for detailed, written reasoning behind the non-renewal. Insurers are required to provide specific explanations.
  2. Gather Evidence: If the reasoning is inaccurate (e.g., citing non-existent property damage or violations), document and photograph the property to refute it.
  3. Appeal or File a Complaint: Submit a formal complaint to the California Department of Insurance (CDI), which may trigger an investigation or mediation.
  4. Work with Independent Brokers: These professionals often have access to more flexible carriers — including surplus lines insurers — who are still writing policies in California.
  5. Consider the FAIR Plan: California’s FAIR Plan is a last-resort insurance program that covers basic fire and liability risks. It’s not ideal for everyone, but it provides a safety net when private insurers refuse coverage.
  6. Mitigate and Modernize: Upgrading roofing, clearing vegetation, and adding fire-resistant features can sometimes make a home more insurable, though these improvements aren’t always enough on their own.

A Need for Transparency

What this trend highlights is the urgent need for greater transparency and accountability in California’s insurance marketplace. While insurers are undoubtedly grappling with real challenges — including climate risk, regulatory caps on rate hikes, and rising claim payouts — consumers deserve clarity, consistency, and fairness.

Policyholders who’ve paid their premiums for years shouldn’t be left scrambling to find coverage because of opaque decisions dressed up as routine underwriting. If insurers want to adjust risk exposure, they should do so transparently, not through seemingly contrived reasons that create unnecessary panic and financial instability.

Looking Ahead

As climate pressures and regulatory tensions continue, it’s likely that California’s insurance market will remain in flux. More carriers may adopt similar quiet-cut tactics — not to exit the market entirely, but to shrink their exposure under the radar. Meanwhile, homeowners will be forced to navigate an increasingly fragmented and unpredictable system.

Until legislative or regulatory reforms address this imbalance, homeowners and their advisors — especially real estate professionals and insurance brokers — will need to stay proactive. That means watching for unusual non-renewals, pushing back when necessary, and sharing information within their networks.

Because sometimes, a bogus reason for dropping a policy isn’t just an error — it’s a strategy.

Published by stenoimperium

We exist to facilitate the fortifying of the Stenography profession and ensure its survival for the next hundred years! As court reporters, we've handed the relationship role with our customers, or attorneys, over to the agencies and their sales reps.  This has done a lot of damage to our industry.  It has taken away our ability to have those relationships, the ability to be humanized and valued.  We've become a replaceable commodity. Merely saying we are the “Gold Standard” tells them that we’re the best, but there are alternatives.  Who we are though, is much, much more powerful than that!  We are the Responsible Charge.  “Responsible Charge” means responsibility for the direction, control, supervision, and possession of stenographic & transcription work, as the case may be, to assure that the work product has been critically examined and evaluated for compliance with appropriate professional standards by a licensee in the profession, and by sealing and signing the documents, the professional stenographer accepts responsibility for the stenographic or transcription work, respectively, represented by the documents and that applicable stenographic and professional standards have been met.  This designation exists in other professions, such as engineering, land surveying, public water works, landscape architects, land surveyors, fire preventionists, geologists, architects, and more.  In the case of professional engineers, the engineering association adopted a Responsible Charge position statement that says, “A professional engineer is only considered to be in responsible charge of an engineering work if the professional engineer makes independent professional decisions regarding the engineering work without requiring instruction or approval from another authority and maintains control over those decisions by the professional engineer’s physical presence at the location where the engineering work is performed or by electronic communication with the individual executing the engineering work.” If we were to adopt a Responsible Charge position statement for our industry, we could start with a draft that looks something like this: "A professional court reporter, or stenographer, is only considered to be in responsible charge of court reporting work if the professional court reporter makes independent professional decisions regarding the court reporting work without requiring instruction or approval from another authority and maintains control over those decisions by the professional court reporter’s physical presence at the location where the court reporting work is performed or by electronic communication with the individual executing the court reporting work.” Shared purpose The cornerstone of a strategic narrative is a shared purpose. This shared purpose is the outcome that you and your customer are working toward together. It’s more than a value proposition of what you deliver to them. Or a mission of what you do for the world. It’s the journey that you are on with them. By having a shared purpose, the relationship shifts from consumer to co-creator. In court reporting, our mission is “to bring justice to every litigant in the U.S.”  That purpose is shared by all involved in the litigation process – judges, attorneys, everyone.  Who we are is the Responsible Charge.  How we do that is by Protecting the Record.

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