California Seeks Penalties Against State Farm Over Wildfire Claims

California regulators are seeking millions of dollars in penalties against State Farm, the state's largest home insurer, after an investigation found the company violated state law while handling claims from the devastating 2025 Los Angeles-area wildfires. The investigation, announced Monday by Insurance Commissioner Ricardo Lara, revealed that State Farm violated the law hundreds of times in a sampling of 220 cases.

The maximum penalty amount allowed by law would be around $4 million if State Farm is found to have acted willfully. Regulators may also temporarily suspend the company's license for up to a year, effectively prohibiting it from writing new policies in California during that period. The wildfires, known as the Palisades and Eaton fires, resulted in 31 deaths and the destruction of more than 16,000 structures.

State Farm has rejected the allegations, stating that it did not engage in a general practice of mishandling or intentionally underpaying wildfire claims. The company said it has paid out more than $5.7 billion on approximately 13,700 auto and home insurance claims related to the fires. State Farm also criticized the state's insurance market as dysfunctional.

The legal action comes amid an ongoing insurance crisis in California, where 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. The investigation was launched last June after survivors of the Palisades and Eaton fires reported delays and mishandling of claims regarding damage to their homes and possible contamination from smoke.

The department looked at 220 random claims filed with State Farm and found roughly 400 violations, including 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 department noted that thousands of people might be affected by the unlawful behaviors.

State Farm is not the only insurer facing 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 FAIR Plan is an insurance pool that all major private insurers pay into, issuing policies to people who can't get private insurance because their properties are deemed too risky.