Alleged mishandling of LA wildfire claims by State Farm sparks legal action

LOS ANGELES (KESQ) - An investigation by the California Department of Insurance found that claims filed with State Farm by survivors of the 2025 Eaton and Palisades wildfires were "delayed, underpaid, and buried'' in red tape, resulting in legal action by the office, it was announced Monday.

The department's enforcement action seeks millions of dollars in penalties, considered the largest amount pursued this century following a wildfire disaster, Insurance Commissioner Ricardo Lara said. It also calls for a suspension of the company's license for up to a year.

In addition to penalties, the department is requiring State Farm to take corrective actions to speed up payments and resolve outstanding claims.   

State Farm policyholders filed nearly 11,300 residential claims related to the wildfires, nearly one-third of the 38,835 claims filed across all insurers, according to the department's claims tracker.

The violations indicate that thousands of survivors may have been affected, according to Lara.  

In an emailed statement to City News Service, State Farm rejected Lara's characterization of the company's handling of some claims.   

"Wildfire survivors deserve real solutions -- not a distorted picture of State Farm's response,'' according to the company. "We strongly disagree with the department's characterization. We reject any suggestion State Farm engaged in a general practice of mishandling or intentionally underpaying wildfire claims, and we will respond through the process."   

State Farm called California's homeowners insurance market ``the most dysfunctional in the country'' and stated that the Illinois-based company has worked to be part of the solution to the problem.

"The department's approach is adding uncertainty to a market that already lacks predictability, discouraging participation and leaving Californians with fewer coverage options when they need them most,'' according to State Farm.

The Insurance Department said its probe found a pattern of delay and denial of claims after examiners reviewed a sample of 220 claims and found 398 violations of state law in 114 of those claims, many of which contained multiple problems.

"Wildfire survivors came to us for help, and we followed the facts,'' Lara said in a statement. "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."  

Major violations mirror the delays and denials reported by wildfire survivors, including slow and inadequate investigation, underpayment of claims, multiple adjusters causing confusion, smoke damage claim denials and delays, and inadequate communication, according to the Department of Insurance.

"The Los Angeles fires were one of the most destructive disasters in our state's history,'' Lara said. "Survivors deserve a fair, timely recovery, not obstacles and delays. 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 advocacy organization Every Fire Survivor's Network said in a statement Monday that the "lack of enforcement of our regulations is not just a State Farm problem."   

The group said research shows 70% of insured Eaton and Palisades survivors have reported delays, denials, and underpayments across all insurers.   

"Thousands of families are suffering as a result,'' according to the group.   

The organization said public confidence in oversight ``is undermined when regulators leave office and go on to work for the very companies they once regulated. This revolving door creates the perception, and the risk, that decisions are influenced by future career opportunities rather than the needs of the public.''  

Noting the legal action against State Farm, Gov. Gavin Newsom warned insurers they may be subject to state enforcement if they unlawfully delay or deny claims for L.A. wildfire survivors.  

"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. We're standing up for survivors by holding insurance companies accountable -- especially when they delay or deny what people are owed."