California seeks millions in penalties from State Farm over alleged claims violations after LA wildfires

California is seeking millions of dollars in penalties from State Farm after an investigation found the insurance company was slow to investigate and underpaid claims from the 2025 Los Angeles-area wildfires, regulators announced on Monday.State Farm violated the law hundreds of times in a sampling of 220 cases, the state’s insurance commissioner, Ricardo Lara, said. The maximum penalty amount allowed by law would be about $4m if State Farm is found to be “willful” in violating state law. Regulators may also temporarily suspend the company’s license, effectively prohibiting the state’s largest home insurer from writing new policies for a year in California.The two fires were devastating – they led to the deaths of 31 people and destroyed more than 16,000 structures.State Farm said in a statement it rejected any suggestions it “engaged in a general practice of mishandling or intentionally underpaying wildfire claims” and called the state’s insurance market “dysfunctional”. The company said it has paid out more than $5.7bn 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 statement said.The legal action comes as California struggles with an ongoing insurance crisis, one in which companies are boosting rates, limiting coverage, or pulling out completely from regions susceptible to wildfires and other natural disasters. In 2023, several major insurance companies, including State Farm, either paused or restricted new coverage in the state. They said they can’t truly price the risk on properties as wildfires become more common and destructive due to the climate crisis.The state now gives insurers more latitude to raise premiums in exchange for issuing more policies in high-risk areas. That includes regulations allowing insurers to consider climate change when setting their prices and allowing them to pass on the costs of reinsurance to California consumers.Lara last year also approved State Farm’s request to raise premiums by 17% for homeowners to help the company avoid a financial crisis after the LA fires. State Farm also agreed not to cancel any new polices this year in an agreement with the department and a consumer group in March.Lara launched the investigation last June after survivors of the Palisades and Eaton fires said that State Farm was delaying and mishandling claims regarding damage to their homes and possible contamination from smoke.“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,” Lara said in a statement.The department looked at 220 random claims filed to State Farm and found roughly 400 violations. They included underpayment and slow or inadequate claim processing. State Farm handled about one-third of all residential claims filed after the fires, state officials said. The state’s department of insurance said thousands of people might be affected by the unlawful behaviors.In one case, State Farm waited nearly three months before starting to investigate a claim, according to the state. In another, the company delayed paying a customer for months while internally acknowledging the payment should have been approved. The company also caused confusion for a customer after assigning a dozen claim adjusters to the case within four months.State Farm also illegally denied payments for hygienic testing for toxins in smoke-damage claims, the legal filings said.State Farm is the second insurer to face legal actions from the state over its handling of LA fire claims. The department is also seeking remedies against the Fair Plan for denying smoke-damage claims. The plan is an insurance pool that all the major private insurers pay into, and the plan then issues policies to people who can’t get private insurance because their properties are deemed too risky to insure.