California moves to penalize State Farm for delaying, underpaying wildfire claims

The California Department of Insurance is hoping to level penalties against State Farm after it found the insurance company excessively denied, delayed and underpaid claims filed by survivors of the 2025 Los Angeles wildfires.

“Survivors deserve a fair, timely recovery, not obstacles and delays,” Commissioner Ricardo Lara said in a statement released Monday.

The Palisades and Eaton fires burned through more than 37,000 acres from Jan. 7 2025 to Jan. 31 2025. They killed at least 29 people and razed more than 16,000 structures.

The recent action is spurred by the results of a “Market Conduct Examination” initiated last year, which found that out of a sampling 220 claims processed by the insurer, 114 contained violations of state law, ranging from investigation timelines stretching longer than permitted to smoke damage claims being denied without requisite tests.

In a legal document filed against State Farm, the department seeks millions of dollars in financial penalties, as well as a temporary suspension of the company’s ability to conduct business in the state. The department has also thrown its weight behind two proposals in the Capitol that seek to improve future disaster response. State Farm rejected the allegations on their website Monday, calling the filing a “reckless, politically motivated attack that could ultimately cripple California’s homeowners insurance market.”

“Most of the issues cited were administrative or process-related — such as notices or letters sent after statutory requirements, documentation, or payee information — not broad failures to pay covered claims,” the company’s statement reads.

Assemblymember John Harabidean, D-Sierra Madre, commended Lara in an emailed statement Monday.

“From the White House to Lake Avenue, today’s investigation confirms what everyone knows: State Farm is grossly mishandling wildfire claims,” he said. “In a time when wildfire survivors should have received the support they needed to rebuild, State Farm failed policyholders when it mattered most, prolonging the timeline of recovery and pushing families to the brink of financial ruin.”

The response to the fires and the area’s slow rebuilding have galvanized political criticism against Los Angeles Mayor Karen Bass and Gov. Gavin Newsom. On Monday, the governor released a statement in support of the department’s action.

“People need accelerated relief, and we’re not going to sit by while companies slow-walk claims and make it harder for families to rebuild. We’re standing up for survivors by holding insurance companies accountable — especially when they delay or deny what people are owed.”

The department is seeking a public hearing on the issue before an administrative law judge.

Meanwhile, two proposals in the California Legislature, Senate Bill 876, by state Sen. Steve Padilla, D-Chula Vista, and Assembly Bill 1795, by Assemblymember Mike Gipson, D-Carson, would aim to bolster protections in case of future disasters.

SB 876 would require insurers to maintain disaster recovery plans, among other new guidelines, and AB 1795 would create public health and insurance standards for smoke-damaged homes. Both bills are still in their house of origin.

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