California is seeking millions of dollars in penalties against State Farm after state regulators concluded the insurer handled some insurance claims tied to 2025 wildfires in the Los Angeles area too slowly and paid too little, Insurance Commissioner Ricardo Lara said Monday.
Lara said the California Department of Insurance’s investigation found State Farm violated state law hundreds of times in a sampling of 220 cases. The department said those reviews identified roughly 400 violations tied to claim processing, including delays and underpayment. Lara said the conduct could affect thousands of policyholders.
The state’s legal action centers on two devastating fires—the Palisades fire and the Eaton fire—fires that left 31 people dead and destroyed more than 16,000 structures. The department said it reviewed claims submitted after the fires and that State Farm handled about one third of all residential claims filed.
Regulators said examples in the department’s filing included a case in which State Farm waited nearly three months before starting to investigate a claim. The department also cited another case in which the insurer delayed paying a customer for months while internally acknowledging that approval should have occurred sooner, and a situation in which State Farm assigned a dozen claim adjusters to a case within four months, creating confusion for the customer.
The department further alleged that State Farm illegally denied payments for hygienic testing for toxins connected to smoke-damage claims. Lara characterized the findings as a failure to process policyholders’ claims promptly and fairly during emergencies when he said customers needed help most.
In a statement, State Farm rejected suggestions that it “engaged in a general practice of mishandling or intentionally underpaying wildfire claims.” The company said the California insurance market is “dysfunctional” and added that it has paid out more than $5.7 billion on 13,700 auto and home insurance claims related to the fires.
State Farm also warned that the state’s potential effort to suspend State Farm General’s ability to serve customers over what it described as administrative and procedural errors was “a reckless, politically motivated attack” that could “ultimately cripple California’s homeowners insurance market.” The company’s comment came as the state weighs regulatory consequences that could affect whether it can write new policies.
California’s action also comes amid a broader insurance crisis in which companies have been boosting rates, limiting coverage or leaving wildfire-prone regions. The department said some insurers in 2023 paused or restricted new coverage in the state, saying they cannot accurately price the risk as wildfires become more common and destructive, a trend regulators and insurers have linked in part to climate change.
The state has also expanded regulators’ ability to give insurers more latitude on premium increases in exchange for issuing more policies in high-risk areas. Those changes include regulations that allow insurers to consider climate change when setting prices and to pass on the costs of reinsurance to California consumers.
Lara said he last year approved State Farm’s request to raise homeowners premiums by 17% to help it avoid a financial crisis after the LA fires. He also said State Farm agreed, under an arrangement with the department and a consumer group in March, not to cancel any new policies this year.
The department said State Farm is the second insurer to face legal action from California over its handling of Los Angeles-area fire claims. The state is also seeking remedies against the FAIR Plan, an insurance pool funded by private insurers that issues policies to people who cannot get coverage from major private companies because their properties are considered too risky.
In its filing, the state said the maximum penalty allowed by law could be around $4 million if regulators find State Farm acted “willfully” in violating state law. The state also said regulators may temporarily suspend State Farm’s license, effectively barring it from writing new policies for up to a year in California.