California’s insurance regulator announced Monday it is seeking a record fine against State Farm, the state’s largest insurer, after an investigation found the company systematically mishandled claims from last year’s Los Angeles wildfires.
The months-long investigation, known as the Market Conduct Examination, followed thousands of complaints against State Farm in which policyholders alleged a pattern of delays and claim denials that undermined their ability to rebuild.
The California Department of Insurance looked at a sample of 220 State Farm claims and found a total of 398 violations of state law in 114 of them. There were multiple violations in many claims.
According to state law, the department could fine State Farm $5,000 per violation — or $10,000 if the violation was willful — which would mean a fine of about $2 million, said Michael Soller, a deputy insurance commissioner in California, who noted that fines of more than $10,000 are rarely enforced because willful violations are difficult to prove.
Mr. Soler, a spokesman for the regulator, said, “There is no record of the department seeking a large penalty against any insurance company for mishandling claims.”
The proposed fine, as well as the results of the market conduct study, would need to be reviewed by an administrative law judge.
The investigation found that State Farm “delayed, underpaid and buried policyholders in red tape at the worst moment of their lives,” said Ricardo Lara, California’s insurance commissioner. Nearly half of all consumer complaints were for claims of smoke damage, and this also included refusals to test for toxins, as previously reported in a New York Times investigation.
According to the department, the last time an insurer was fined that amount was after the Oakland Hills fire in 1991, when Allstate was issued a $1.9 million fine for its handling of claims.
Hours after the department’s findings were announced, California Governor Gavin Newsom warned insurers that “if they unlawfully delay or deny claims they may be subject to state enforcement.”
Advocates for the homeowners, as well as one of California’s former insurance commissioners, called the proposed fine modest considering State Farm’s profits.
“It would cost two million dollars to repair two homes in California,” said Carmen Balber, executive director of Consumer Watchdog, a California-based group that monitors the insurance industry. “If State Farm broke the law in half of its claims, $2 million is too little to hold it accountable.”
On January 7, 2025, a wildfire that broke out in the dry hills of Los Angeles destroyed more than 16,000 structures, burning the Pacific Palisades, scorching homes along Highway 1 in Malibu and spreading trash across parts of Altadena. Thousands of people were contaminated by the toxic smoke, resulting in a total of 38,835 claims, of which approximately 11,300 claims were handled by State Farm.
In a statement, a State Farm spokesperson said, “We reject any suggestion that State Farm is engaging in the common practice of mishandling or intentionally underpaying wildfire claims.” “California’s homeowners insurance market is one of the worst in the country, and State Farm has worked to be part of the real solution,” he said.
Survivors of the fire say the results are too little, too late, and show that the regulatory process is toothless.
State Farm could lose its license for up to a year, according to paperwork filed Monday by regulators. But both the Department of Insurance and the Consumer Watchdog said that was unlikely.
Joy Chen, a former deputy mayor of Los Angeles who has advocated on behalf of fire survivors, said, “This unlawful conduct has been going on for 16 months — people have suffered needlessly.” “We have filed thousands of complaints with this department and it has been a black box. Now that they have finally acknowledged the problem, we have a paltry fee of $2 million while these companies have been profiteering this entire time.”
