Officials: Insurer regularly broke law

A state investigation into California's largest home insurer, State Farm General Insurance Co., alleges it violated state law more than 400 times in its response to the 2025 Los Angeles County wildfires.

The California Department of Insurance launched its investigation last summer in response to complaints from Eaton and Palisades wildfire survivors who said State Farm's adjusters made inconsistent decisions on similar claims and refused to communicate, among other issues.

Investigators reviewed a random sample of 220 claims arising from the fires alongside complaints from State Farm policyholders. The final report, released Monday, alleges the insurer violated the California Insurance Code in more than half of cases -- totaling over 400 discrete violations.

They range from unreasonable delays to failure to provide policyholders with the estimates used to determine their claims payout.

In its response to regulators, State Farm acknowledged a number of alleged violations, but characterized them as "unintentional oversights" and "file-specific errors" committed by its claim handlers. In the wake of large catastrophes, insurers often bring on independent contractors to manage the influx of claims. State Farm told regulators it held a training in late 2025 to correct these issues. It noted it has made additional payments worth several tens of thousands of dollars to policyholders whose claims were harmed by potential violations.

If an administrative law judge affirms the investigation's findings, State Farm could be fined up to $5,000 per violation. However, if the judge finds State Farm willfully violated state law, the fine could rise to up to $10,000 per violation.

It could potentially be the largest fine levied against an insurer following a wildfire in recent history, Deputy Insurance Commissioner Michael Soller said.

State Farm General insured more people impacted by the Los Angeles fires than any other insurer, according to the company. The insurer received more than 13,700 claims and has paid out more than $5.7 billion so far.

In a statement, State Farm denied "mishandling or intentionally underpaying wildfire claims" and said it would respond to the allegations through the regulatory process.

"Wildfire survivors deserve real solutions -- not a distorted picture of State Farm's response," the company said. "We strongly disagree with the Department's characterization."

The most common violation was failing to respond to policyholders on time. The investigation identified 79 cases where the insurer allegedly failed to notify policyholders in a timely manner.

State Farm also often underpaid claims, the insurance department report found, particularly those involving smoke damage.

In one case the investigation documented, a homeowner hired a franchise that estimated the cost to remediate their smoke damage to be just under $72,500. State Farm then allegedly hired a different arm of the same franchise whose estimate was just $44,300 -- almost 40% lower.

State Farm told regulators that the first arm of the franchise did not conduct an inspection and that "it is a normal process to have reconciliation with the contractor for differences in opinion." But the department said State Farm's use of preferred franchises to create estimates may present a conflict of interest.

Many of the report's findings mirror those of a Chronicle series that investigated how major property insurers used flawed algorithms, hidden rules and experts with conflicts of interest to minimize their losses following the Los Angeles wildfires, particularly for surviving homes tainted by smoke.

In the case of State Farm, the Chronicle found multiple cases wherein the insurer cut policyholders' repair estimates to unreasonably low levels through its adjusting process. One homeowner, Rossana Valverde, inadvertently received a copy of her repair estimate that had been marked up with red text -- edits that sliced her smoke-damaged home's repair estimate in half.

The Department of Insurance's investigation documented a similar case wherein an adjuster for State Farm deleted three line items from an estimate of what it would take to clean a policyholders' furniture, but never shared the lower, revised estimate with the homeowner. In another, it edited an estimate provided by the policyholder's chosen contractor without sending the new estimate to the homeowner. State Farm told regulators it has since supplied both policyholders with their revised estimates.

The Chronicle also found that many insurers, including State Farm, hired their own so-called "preferred vendors" to create estimates that were typically much lower than the ones solicited by homeowners and then used these estimates to negotiate down the cost of the claim.

In a manual the Chronicle obtained, State Farm instructed its adjusters to avoid putting denials in writing. Former employees reporters interviewed said the instructions allowed them to delay settlement of claims, giving them flexibility to rescind offers of coverage if they needed to in the future. The reporters' finding echoes the insurance department investigation; in 24 instances, regulators allege State Farm failed to clearly document decisions in writing.

Since the Chronicle published its series, state lawmakers have introduced five bills responsive to its findings. If enacted, these proposed laws are designed to improve transparency during the claims handling process; enact first-in-the-nation scientific standards for testing and cleaning of smoke-damaged homes; and penalize insurers for issuing delayed payments, among other reforms.

"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 Ricardo Lara said in a statement. "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."

The order to show notice sent Monday notes that a hearing on the allegations against State Farm will be held within 30 days.