California says State Farm violated the law in handling of insurance claims after Eaton, Palisades fires in 2025 – ABC7 Los Angeles

LOS ANGELES (KABC) — Insurance giant State Farm may temporarily lose its California license after an investigation found it violated the law in its handling of claims from the 2025 wildfires.

An investigation found the insurance company was slow to investigate and underpaid claims from the Eaton and Palisades fires, regulators announced on Monday.

If the California Department of Insurance (CDI) gets its way, State Farm will be shelling out millions of dollars in penalties.

State Farm violated the law hundreds of times in a sampling of 220 cases, Insurance Commissioner Ricardo Lara said. The maximum penalty amount allowed by law would be around $4 million 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.

Those who track California’s volatile insurance market are calling this a bombshell.

RELATED: LA County launches State Farm probe following Eaton, Palisades fires

“It’s really hard being back here,” said Jesse Albert, a State Farm policyholder.

Albert says it’s because his lot has been remediated… but that’s it. Construction on his neighbor’s home is well underway, but Albert is in a standoff with State Farm, which he sued after the fire, claiming the company deliberately underinsured him.

“Many of us have lodged complaints with the Department of Insurance and felt unheard,” Albert said.

After Monday’s announcement, Albert says he now feels heard.

The CDI says its investigation into State Farm shows the company did not adequately investigate all claims. The state also alleges that State Farm underpaid some claims and misclassified testing costs connected to smoke and ash remediation.

“I would say that this is a good first step,” Albert said.

State Farm is firing back at the state, saying:

“We reject any suggestion that State Farm engaged in a general practice of mishandling or intentionally underpaying wildfire claims, and we will respond through the process… Wildfire survivors deserve real solutions — not a distorted picture of State Farm’s response.”

State Farm is also accusing the CDI of adding “uncertainty” into California’s “dysfunctional” insurance market. The company said it has paid out more than $5.7 billion 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, 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. They said they can’t truly price the risk on properties as wildfires become more common and destructive due to climate change.

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.

MORE: Eaton Fire victim finally gets help from State Farm after lengthy insurance battle

Last year, Lara approved State Farm’s request to raise premiums by 17% for homeowners to help the company avoid a financial crisis after the L.A. fires. State Farm also agreed to not cancel any new policies this year in an agreement with the department and a consumer group in March.

Eyewitness News asked an insurance expert if State Farm policyholders unimpacted by the wildfires should worry about State Farm pulling out of business in the state.

“It certainly could happen, but they have a lot invested here. I mean, they insure one out of every five homes. So this is a big market for them,” said Amy Bach with United Policyholders. “I think the message is to State Farm, taking shortcuts on claims is not the way to make up for the fact that you have not been allowed to charge what you think you should be charging.”

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 department 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 case, 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.

The CDI investigation will eventually be laid out in a public hearing before an administrative law judge.

On top of pushing for the financial fines, the CDI could also push to have State Farm’s ability to write new policies in California temporarily suspended.

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.

Governor Gavin Newsom said that this should be a warning to all insurance companies not to wrongfully delay or deny claims.

The Palisades and Eaton fires were devastating — leading to the deaths of 31 people and destroying more than 16,000 structures.

The Associated Press contributed to this report.