California claims the insurance giant underpaid victims of the deadly 2025 wildfires that ravaged large parts of LA.
SACRAMENTO, Calif. (AP) – California is seeking millions of dollars in fines from State Farm after an investigation found that the insurance company was slow to investigate and underpaid claims from the 2025 fires in the Los Angeles area, regulators announced Monday.
State Farm violated the law hundreds of times in a sampling of 220 cases, Insurance Commissioner Ricardo Lara said. The maximum penalty allowed by law would be about $4 million if State Farm is found to be “willful” in violating state law. Regulators could also temporarily suspend the company’s license, effectively barring the state’s largest home insurer from writing new policies for a year in California.
The two fires were devastating — they killed 31 people and destroyed more than 16,000 structures.
State Farm said in a statement that it rejected any suggestion that 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 $5.7 billion for 13,700 auto and home insurance claims related to the fires.
“The threat to suspend State Farm General’s ability to serve customers due to largely administrative and procedural errors is a reckless, politically motivated attack that could ultimately cripple the California homeowner’s insurance market,” the statement said.
The legal action comes as California struggles an ongoing insurance crisiswhere are the companies increasing rateslimiting coverage or withdrawing entirely from regions prone to fires and other natural disasters. In 2023, several major insurance companies, including State Farm prohibited or restricted new coverage in the state. They said they can’t really assess the risk to properties as fires become more common and destructive because of climate change.
The state now gives insurers more freedom to raise premiums in exchange for issuing more policies in high-risk areas. This includes regulations that allow insurers to consider climate change when they set their prices and allow them to pass the costs of reinsurance on to California consumers.
Lara last year also approved State Farm’s request to raise premiums from 17% for homeowners to help the company avoid a financial crisis after the LA fire. State Farm also agreed not to cancel any new policies this year in a settlement with the department and a consumer group in March.
Lara launched the investigation last June after his survivors The palisade AND Eaton fires said State Farm was delaying and mishandling claims related to damage to their homes and potential smoke pollution.
“Our investigation found that State Farm delayed, underpaid and buried policyholders at the worst time of their lives. This is unacceptable and we are taking decisive action to hold them accountable,” Lara said in a statement.
The department reviewed 220 random claims submitted to State Farm and found approximately 400 violations. They included underpayment and slow or inadequate processing of claims. State Farm handled about a third of all housing claims filed after the wildfires, state officials said. The department said thousands of people could be affected by the illegal behaviour.
In one case, State Farm waited nearly three months before beginning to investigate a claim, according to the state. In another, the company delayed a customer’s payment for months while admitting internally that 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 hygiene testing for toxins in smoke damage claims, legal filings said.
State Farm is the second insurer to face legal action from the state over its handling of fire claims in LA. The department is also looking remedies against the FAIR Plan for denying smoke damage claims. The plan is a pool of insurance into which all major private insurers pay, and the plan then issues policies to people who cannot get private insurance because their properties are considered too risky to insure.
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