California Moves To Suspend State Farm Over Wildfire Claims

California's insurance commissioner wants to see State Farm's license to do business in the state suspended for up to a year, with the insurer coming under fire for its handling of claims from the 2025 wildfires.

California Department of Insurance Commissioner Ricardo Lara filed a stipulation calling for the up-to-one-year suspension, as well as a fine of up to $10,000 per violation, against State Farm General Insurance Co., after an investigation found "significant mishandling of insurance claims."

The state is seeking millions of dollars in penalties, Lara said. The filing requires State Farm to take corrective action to speed up claims and payments. The filing, called an Accusation and Order to Show Cause, alleges violations of the state's Unfair Insurance Claims Practices Act.

It's a first step before the company must appear before an administrative law judge.

"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."

In a statement, State Farm rejected the allegations. It called California's insurance market "the most dysfunctional in the country" and said it was trying to help home owners.

"We strongly disagree with the Department’s characterization," the company said. "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."

Insurance Business Under Scrutiny

The Palisades and Altadena fires in January 2025 destroyed 16,000 structures, including 12,000 homes, causing upward of $131 billion in property and capital losses. And there has been plenty of finger-pointing since then. Residents are frustrated by the slow pace of cleanup, and politicians in Washington and Sacramento have accused one another of malfeasance.

State Farm policyholders filed 11,300 residential claims from the wildfires, accounting for as many as a third of the 38,835 claims filed from the fires. Lara said in a statement the firm has been a frequent subject of complaints from survivors.

A state investigation of 220 claims found a total of 398 violations, including slow investigations, underpayment of claims, confusion, denials, and poor communications. California wants penalties for those violations, plus an additional 34 based on consumer complaints.

The state Legislature is considering several bills to change its insurance business and require more consumer-friendly practices from insurers. And it launched a similar legal action against another insurer, FAIR Plan, over its denial of smoke damage claims.

"Survivors deserve a fair, timely recovery, not obstacles and delays," Lara said. "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."

Insurance Industry Fallout

Insurers, for their part, have faced a massive financial impact from the wildfires. California information shows insurers have paid about $23.7 billion to residential, commercial and auto policyholders. And, the California Department of Insurance has received $280 million from insurers through direct intervention.

State Farm announced new steps to help California policyholders last month. It will assign single points of contact, increase communication and take other steps. As of last month, the insurer said it has logged 2 million customer contacts and paid $5.7 billion in claims.

"We recognize that in an event of this scale, a perfect process is nearly impossible and some customers understandably and unfortunately experienced some frustration," Dan Krause, president of State Farm General, said in a statement last month.

"Real progress has been made toward helping people recover and we remain committed to addressing remaining customer concerns,” he said.