California is seeking millions of dollars in penalties from State Farm after an investigation found the insurance company was slow to investigate and underpaid claims from the 2025 Los Angeles-area wildfires, regulators announced Monday.
State Farm violated the law hundreds of times in a sampling of 220 cases, Insurance Commissioner Ricardo Lara said. The maximum penalty allowed by law would be approximately $4 million if State Farm is found to have been "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 in California for a year.
"Our investigation found that State Farm delayed, underpaid, and buried policyholders in red tape at the worst moment of their lives," Lara said in a statement. "That is unacceptable, and we are taking decisive action to hold them accountable."
The two fires were devastating — they led to the deaths of 31 people and destroyed more than 16,000 structures.
The department reviewed 220 randomly selected 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, and the department warned that thousands of policyholders may have been affected by the unlawful practices.
In one case, State Farm waited nearly three months before beginning to investigate a claim. 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 one customer after assigning a dozen claim adjusters to the case within a four-month span. The company additionally and illegally denied payments for hygienic testing related to toxins in smoke damage claims, according to the legal filings.
State Farm denied the allegations, saying in a statement it rejected any suggestion it "engaged in a general practice of mishandling or intentionally underpaying wildfire claims" and described the state's insurance market as "dysfunctional." 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 company said.
Gov. Gavin Newsom, who announced the enforcement action alongside Lara, warned other insurers that they could face similar consequences. "Survivors' ability to access their insurance coverage is foundational to LA recovery," Newsom said. "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."
State Farm is the second insurer to face legal action from the state over its handling of LA fire claims. The department is also seeking remedies against the FAIR Plan — the insurance pool of last resort funded by all major private insurers — for denying smoke damage claims.
The enforcement action drew strong support from the Legislature. Sen. Ben Allen (D-Pacific Palisades), whose district was among the hardest hit by the fires, said the findings were not a surprise to him.
"We will not tolerate barriers that prevent survivors from receiving what they're justly owed," Allen said. "Too many Californians have been mistreated by their insurer since the 2025 LA Fires, which is why I urged for this investigation last year alongside my legislative colleagues."
Allen noted that today's action was part of a broader reckoning he and other lawmakers had been pushing for since the fires tore through Palisades and Eaton communities. "Residents need to know they're being protected from bad actors during these moments of extreme vulnerability," he said, "and today's enforcement action sends a strong message that we will not stand for these harmful practices."
Allen has also been advancing legislation aimed at structural reform. The Senate Insurance Committee this week approved two of his bills — SB 1209 and SB 1301 — both targeting gaps in how insurers are regulated and how policyholders are informed.
SB 1301 would require insurers to explain the specific reasons why a policy is not being renewed, and to give policyholders an opportunity to maintain coverage if they address the identified risks. California has the fourth-highest rate of insurance nonrenewals in the country, Allen's office noted, and the FAIR Plan has seen its exposure grow 230 percent since 2022 as more homeowners lose private coverage.
"Families need more information," Allen said. "We can't expect them to know why they've been deemed too risky without these details from their insurer. This transparency will empower more Californians to appropriately reduce their risk and improve insurability."
SB 1209 would establish deadlines by which California-based insurers must resolve deficiencies identified during Department of Insurance examinations, with fines of up to $20,000 for those that fail to comply. The measure came in direct response to problems uncovered at the FAIR Plan: a 2025 examination found that fewer than half the recommendations from a 2022 report had been implemented, contributing to widespread claims denials and financial distress after the LA fires.
"The insurance market is not going to heal on its own," Allen said. "From risk reduction to good-faith coverage, we all need to be doing our part to re-stabilize the system."
Both bills now advance to the Senate Appropriations Committee for votes in the coming weeks.
The enforcement action and the pending legislation come as California continues to grapple with an escalating insurance crisis. Companies have been boosting rates, limiting coverage or pulling out of high-risk regions altogether, citing the increasing frequency and severity of wildfires driven by climate change. In 2023, State Farm was among several major insurers that paused or restricted new coverage in the state.
California has since overhauled its regulatory framework to entice insurers back, granting them more latitude to raise premiums in exchange for issuing more policies in high-risk areas — including allowing companies to factor in climate change projections and pass on reinsurance costs to consumers. Lara last year approved State Farm's request for a 17 percent rate increase for homeowners, and the company agreed earlier this year not to cancel any new policies in 2025 under a deal brokered with the department and a consumer advocacy group.
Despite those concessions, state officials said the investigation made clear that regulatory reform alone is not enough if carriers continue to mishandle claims. Newsom pointed out that California home insurance rates remain below the national average — averaging $1,616 per year compared to the national average of $2,543, and far below Florida's $7,136 and Texas's $4,085.
Lara launched the investigation last June after survivors of the Palisades and Eaton fires reported that State Farm was delaying and mishandling their claims, including those involving potential contamination from smoke.
The department said it is prepared to pursue the full range of available remedies, including the license suspension, if State Farm does not come into compliance.
By TRÂN NGUYỄN Associated Press. Matthew Hall contributed to this report.