California says State Farm violated the law in handling of insurance claims after 2025 LA wildfires

“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.

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

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, 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.

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.

Trân Nguyễn, The Associated Press

by The Canadian Press

California says State Farm violated the law in handling of insurance claims after 2025 LA wildfires

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