‘Deny, deny, deny’: The shady insurance scheme fleecing thousands of homeowners

Michelle Fuller banked everything on the three-bedroom Victorian on 15th Street in the Castro, which she bought in 2005 for $985,000. 

After her only child left for college, Fuller downsized to a small apartment but didn’t sell the home. She hired a property manager and rented it out. It’s where she thought her family would always have a stake in the city — even after Farmers Insurance dropped her policy in 2022. 

But two decades after she purchased it, her dream home has become a nightmare. 

She says a renter flooded the house, causing extensive damage. “The wood was warped, the walls were peeling, the baseboards were popping off — it looked like the set of a Tim Burton movie,” Fuller said. “My sweet, beautiful home was destroyed.” The property was rendered legally uninhabitable. 

The worst was still to come. What began as a tenant dispute turned into a protracted legal battle after her little-known property insurer — Sutton Specialty Insurance Co., which issued a policy through middleman Bamboo Ide8 — refused to pay for the damage, describing it as uncovered wear and tear. 

With no way to rent out the two-story, 130-year-old house, Fuller, who is retired, was unable to pay the mortgage, and it lapsed into foreclosure. Her savings are gone. She relies on food stamps and cash welfare to get by.

“Why didn’t they pay my rightful claim? Instead, they spend all this money fighting me,” she said. “They deny and cancel, or deny, deny, deny, and then cancel. I wonder if they ever pay.”

Most of the time, it turns out, they don’t. 

Sutton Specialty is part of a rapidly growing market for costlier, less-regulated insurance by carriers that aren’t licensed in California. Also called surplus line insurers, they are not subject to regulations that limit hikes on customer premiums and are not required to pay into the state’s insurer of last resort, the FAIR Plan. Many of these so-called non-admitted carriers rely on companies like Bamboo — what’s known as a managing general agent — to underwrite, issue, and otherwise administer specialized policies on their behalf.

Lloyds of London — one of the most well-known surplus line insurers — famously covered Bruce Springsteen’s voice, David Beckham’s legs, and, more than a century ago, the RMS Titanic. But amid the slow-rolling collapse of California’s insurance market, these once-obscure forms of property insurance are increasingly becoming the only option for average homeowners looking to avoid the state’s expensive and limited FAIR Plan. In 2024, the non-admitted market reported growth of 1,500% in San Jose and 2,500% in Bakersfield.

New data from the National Association of Insurance Commissioners, compiled by independent firm Weiss Ratings and obtained exclusively by The Standard, shows that Sutton Specialty rejected more than two-thirds of claims on residential homes in California in 2024. 

The national average denial rate for home insurance companies, by comparison, is 37%, according to NAIC — up from 25% two decades ago. 

“Anything over 40% is alarming,” agency founder Martin Weiss said. “At a minimum, this is a glaring red flag.”

By that definition, seven of the 11 surplus line insurers in California with $1 million or more in premiums and at least 1,000 claims closed in 2024 reported denial rates that should sound the alarm. 

Together with policy administrators like Bamboo, which have one foot in the boat and one on the dock by selling policies from admitted and non-admitted carriers alike, companies that once filled gaps in the market are quickly becoming indispensable.

Because of the convoluted web of affiliations and partnerships, it’s not always clear which company is to blame for delaying or denying a claim. Bamboo Ide8’s executive office is in Palo Alto, but its corporation was formed in Arizona, and its biggest investor is headquartered in Bermuda. It underwrites policies for licensed and unlicensed carriers in California. So for customers seeking recourse, it can be hard to know where to turn.

Bamboo founder John Chu — an insurance veteran who launched the company in 2018 — bills himself as a disruptor. While most home insurers collect a handful of basic data points, Bamboo ingests “significantly more, including the condition of the roof, the life of the heating system, the quality of the cabinetry,” according to a sponsored post published late last year in Inc. magazine.  

“We’re better at matching the risk to the price,” Chu said in the post. 

Lawsuits filed against Bamboo accuse the company of breaching contract, inflicting emotional distress, and, in the case of one widowed woman, elder abuse.

With medical bills piling up after Rita Kahlenberg sustained a serious head injury in April 2019, her husband took out a mortgage on the home they had built in North Hollywood. As a condition of the mortgage, they had to take on additional insurance through Catlin Insurance Co., a provider brokered by Bamboo. Days after submitting their application for the policy, her husband died. Two months later, a leaky pipe flooded the house, forcing Kahlenberg to move out.

Bamboo and Catlin denied Kahlenberg’s claim, saying the water damage was due to policy-excluded wear and tear. The companies then canceled her policy altogether. Kahlenberg’s family contends that the experience exacerbated her decline.

In 2023, Donnie Muldrow was visiting his rental home in Los Angeles when he found a burst dishwasher hose in the kitchen, he says. According to his claim to Bamboo, the damage was significant enough to leave the place unlivable for his tenant. But Bamboo declined to cover it in full, again citing wear and tear, despite a contradictory inspection by a contractor.

For Gary Neil and Angela Noriega, it was a storm that left them in dire straits. Strong winds knocked a tree onto their Sonora home in late February 2023. Within five days, the couple had submitted claims to Bamboo for what they documented as $200,000 in property damage and income loss. 

According to the resulting lawsuit, Bamboo “repeatedly and consistently refused to consider the nature and extent” of the loss and refused to evaluate documentation the couple submitted as proof. 

In court filings, Bamboo has repeatedly denied wrongdoing, citing policy exemptions and misrepresentations by policyholders.

Bamboo said it wouldn’t comment on “matters in litigation, or any of the personal details of our policyholders” and did not respond to a query regarding Weiss Ratings’ findings on its affiliates’ low payout rate on client claims.

At its annual meeting Feb. 12, the Surplus Line Association of California — a consortium of non-admitted carriers left to police themselves in lieu of direct oversight by the state’s Department of Insurance — boasted of unprecedented growth in the homeowners market.

The association’s director, Benjamin McKay, touted its role in keeping coverage options available and relieving some pressure on the FAIR Plan. “With ongoing challenges in the admitted market, surplus lines have become a necessary pressure valve,” he said. But it comes at a higher cost for consumers, who often find themselves in one-year contracts, with unregulated rate hikes whenever it’s time to renew.

A spokesperson for the association, Alicia Copple, defended rising premiums as driven by “multiple factors,” including inflation and wildfire risks. 

“These conditions are impacting pricing across all segments of the property market,” she wrote in an email.

When it comes to pricing, she said, “surplus line carriers use market-based pricing models to ensure they can pay claims and remain financially sound.”

Amy Bach, who advocates for consumers as head of the nonprofit United Policyholders, said she has grave concerns about an insurance product intended for “small, weird risks” expanding so quickly into homeowner coverage.

“This is a relatively new phenomenon, something that’s emerged really just in the past five years,” she said. “They see a great opportunity in people’s desperation — and they’re only really looking at the premium income. They’re gambling that the claims won’t outweigh the gains. But you don’t just get to collect the money and never have to pay it back.”

Bach worries that continued unfettered growth of an entire class of insurers exempt from paying into the state-run insurance pool poses an existential threat to the FAIR Plan. As cautionary tales, she points to Florida and Louisiana, where the governments have offered cash incentives for insurance companies to write more unregulated business, creating a race to the bottom that leaves consumers in the lurch.

“I’m sure they’re lobbying [California Insurance Commissioner Ricardo] Lara to do the same here,” she said. “They’re trying to take over the market.”

With so much pressure on the FAIR Plan, California regulators have little incentive to rein in non-admitted carriers, Bach noted. 

“They’re driving semi trucks through a loophole that was only supposed to be big enough for a pickup truck,” she said. 

Weiss agrees, similarly pointing to Florida as “the canary in the coal mine.”

“The priority of Sacramento, just like the priority of Tallahassee, is to continue stimulating growth in the state,” he said. “So they start accepting — even attracting or incentivizing — insurance companies in the state that really rip off the consumer.” 

It’s up to the Department of Insurance to step in. “Nobody really knows the nitty gritty behind the numbers,” Weiss said, “which is why the state should do a detailed investigation. What is really going on here?” 

Without transparency, he added, surplus line insurers — not to mention the companies that issue policies on their behalf — will continue to collect exorbitant premiums upfront and fight tooth and nail when it comes time to pay up.

“They get ’em on the way in and on the way out,” he said. “It’s a really horrible situation, because there’s no disclosure to the customers.”

The Department of Insurance didn’t respond to requests for comment. 

For now, with no apparent action by the state, it’s only individual homeowners and their lawsuits that could force Bamboo and other alleged bad actors to honor their policies. 

Fuller, still trying to save her beloved Castro Victorian from foreclosure, said she’s willing to take her case all the way to trial.

“This has been my whole life,” she said. “I’ve lost everything. I have nothing to lose. I can’t walk away.”