The California Department of Insurance is seeking millions of dollars in penalties against insurance giant State Farm General Insurance Co. after it said this week that an expedited investigation uncovered significant mishandling of insurance claims filed by survivors of the 2025 Los Angeles wildfires.
The department said it also could suspend State Farm’s license.
According to the state, Insurance Commissioner Ricardo Lara acted on consumer complaints and ordered a Market Conduct Examination that it said documented a pattern of unlawful behavior in more than half of the claims reviewed.
The two major, most destructive Los Angeles fires in January 2025 were the Eaton Fire in Altadena and the Palisades Fire in the Pacific Palisades/Malibu area. The two fires were devastating — they led to the deaths of 31 people and destroyed more than 16,000 structures.
State Farm policyholders filed roughly 11,300 residential claims related to the Los Angeles wildfires, nearly one-third of the 38,835 claims filed across all insurers, the state said. The violations identified by the department indicate that thousands of survivors may have been affected.
Millions in Penalties
“Wildfire survivors came to us for help, and we followed the facts,” Lara said. “Our investigation found that State Farm delayed, underpaid, and buried policyholders in red tape at the worst moment of their lives. That is unacceptable, and we are taking decisive action to hold them accountable.”
The department said its enforcement action seeks millions of dollars in penalties, considered the largest amount pursued this century following a wildfire disaster. In addition to penalties, the Department is requiring State Farm to take corrective actions to speed up payments and resolve outstanding claims
“The Los Angeles fires were one of the most destructive disasters in our state’s history. Survivors deserve a fair, timely recovery, not obstacles and delays,” Commissioner Lara said. “We are taking a two-pronged approach: legal action to address State Farm’s conduct, and legislative action to ensure this does not happen again.”
State Farm said in a statement that it rejects any suggestions the it “engaged in a general practice of mishandling or intentionally underpaying wildfire claims” and called the state’s insurance market “dysfunctional.” State Farm said it has paid out more than $5.7 billion on 13,700 auto and home insurance claims related to the fires.
“The threat to suspend State Farm General’s ability to serve customers over primarily administrative and procedural errors is a reckless, politically motivated attack that could ultimately cripple California’s homeowners insurance market,” the State Farm statement said.
Legislation Urgency
The state said that its investigation also highlights the urgency of Lara’s sponsored legislation pending in the state capital that would improve claims handling after a disaster, namely the Disaster Recovery Reform Act and the Smoke Damage Recovery Act, which its said seeks to strengthen claim handling standards and improve recovery for future disaster survivors.
According to the insurance department, its examiners reviewed a sample of 220 claims and found 398 violations of state law in 114 of those claims, many of which contained multiple violations.
The state said that major violations mirror the delays and denials reported by wildfire survivors to the Department, including:
- Slow and inadequate investigation: State Farm failed to begin investigating claims within 15 days, failed to accept or deny claims within 40 days, and failed to pay accepted claims or provide written notice of the need for additional time within 30 days, as required by law.
- Underpayment of claims: State Farm made unreasonably low settlement offers and underpaid claims.
- Multiple adjusters causing confusion: State Farm failed to assign adjusters within statutory timelines and reassigned adjusters repeatedly, creating what survivors described as “adjuster roulette.”
- Smoke damage claim denials and delays: Smoke damage claims represented nearly half of all consumer complaints. Examiners found that State Farm failed to provide required written denials for hygienist and environmental testing, misclassified testing costs, and misrepresented policy provisions related to inspections.
- Inadequate communication: State Farm failed to respond to policyholders, send required status letters, or provide notice when additional time was needed to determine claims.
Since last January, the Department has recovered more than $280 million from all insurance companies for survivors of the Eaton and Palisades fires through direct intervention. As of March 3, 2026, insurers have paid out more than $23.7 billion to residential, commercial, and auto policyholders impacted by the fires.
Public Hearing
The department said it has filed an Accusation and Order to Show Cause against State Farm — the first step toward a public hearing before an administrative law judge. That filing alleges violations of the Unfair Insurance Claims Practices Act and related regulations, including the 398 violations identified in the Market Conduct Examination and 34 additional violations based on consumer complaints.
Under California Insurance Code Section 790.035, penalties may reach $5,000 per violation, or $10,000 for willful violations. Penalties may be imposed by the commissioner following the administrative hearing, the department said.
Separately this week, the California Department of Insurance, Consumer Watchdog, and State Farm General reached a three-party settlement agreement over State Farm’s emergency rate request, now set to be reviewed by an impartial Administrative Law Judge.
