Regulators may seek to suspend State Farm’s license, citing widespread mishandling of L.A. wildfire claims

California regulators may seek to suspend State Farm’s license for up to a year and levy millions in penalties against the insurer, alleging it mishandled January 2025 wildfire claims in Los Angeles County.

In an extraordinary step, the Department of Insurance announced Monday that it filed an administrative action against the state’s largest home insurer after an investigation into 220 sample claims found 398 violations of state law in about half of them.

“Our investigation found that State Farm delayed, underpaid, and buried policyholders in red tape at the worst moment of their lives,” Insurance Commissioner Ricardo Lara said in a statement. “That is unacceptable, and we are taking decisive action to hold them accountable.”

The department is seeking a cease-and-desist order to stop the insurer from engaging in unfair or deceptive practices — and to possibly suspend State Farm’s “certificate of authority” for up to a year, meaning it could not write policies during that period, department spokesperson Michael Soller said.

While the terms of the proposed suspension aren’t clear, the move could prevent the insurer — which covers more than 1 million homes — from issuing new policies at a time when the state is facing an insurance crisis.

The case will be heard by a state administrative law judge, who will provide a recommendation to Lara on a possible monetary penalty and whether to carry out the license suspension. State regulators declined to comment on the action or how it might affect policyholders.

State Farm on Monday rejected the department’s claims that it engaged in a “general practice of mishandling or intentionally underpaying wildfire claims” and said it will further respond through the legal process.

“California’s homeowners insurance market is the most dysfunctional in the country,” State Farm said in a statement. “The California Department of Insurance should take responsibility for regulatory delays and uncertainty that have contributed to fewer choices and higher costs for consumers.”

State Farm said it has paid more than $5.7 billion and handled more than 11,700 residential and auto claims. That is nearly one-third of those filed after the Jan. 7, 2025, fires that damaged or destroyed more than 18,000 structures and killed 31 people.

The department in June 2025 launched a “market conduct exam” into State Farm General — the subsidiary of the giant Bloomington, Ill., insurer that handles California home insurance — after complaints by victims of the fires in Pacific Palisades, Altadena and nearby communities.

The Times reported that within two months of the fires homeowners were getting frustrated with the insurer over its handling of smoke damage claims. They contended that State Farm was resisting hygienic testing for toxic chemicals and was trying to minimize cleanup costs, which the company denied.

Later, anger was directed at Lara, with fire victims saying he wasn’t cracking down on State Farm. More than a dozen homeowners told The Times this year that the department did little to resolve a wide range of complaints they filed against State Farm.

Los Angeles County also has an ongoing investigation into the insurer.

Nevertheless, the threat to suspend State Farm’s license because of the alleged violations was met with skepticism. The company has a roughly 20% market share. It’s unclear where its policyholders could find coverage.

State Farm’s decision to not renew some 72,000 residential policies in March 2024 because of its losses after a series of wildfires sparked fears that California’s home insurance market could be on the brink of collapse.

“Given how the department has bent over backward to prevent State Farm from carrying out its threats to leave the state due to its alleged financial problems, it’s hard to believe,” said Carmen Balber, executive director of Los Angeles advocacy group Consumer Watchdog.

Soller said the terms of a possible suspension — including whether it would apply only to new policies or existing policyholders — would be set after the hearing.

“Any order must define the terms of a suspension based on the evidence at a hearing. We cannot predict what an order after a hearing on the evidence will be,” he said.

The results of the market conduct exam were released Monday in support of the legal action.

It found that the company failed in numerous cases to pursue a “thorough, fair and objective investigation” into claims, failed to come to “prompt, fair, and equitable settlements” and made settlement offers that were “unreasonably low.”

Other alleged violations included a failure to give timely responses to claims, provide a factual or legal basis for claim denials and give victims a primary point of contact after assigning three or more adjusters in a six-month period.

The legal filing also faults the company’s handling of smoke damage claims, including denials of payments for hygienic testing.

The company denied it was at fault in some cases and admitted it was at fault in others, often saying that the problem was due to issues with specific adjusters, and that it held meetings with adjusters after hearing about the alleged violations.

State Farm said Monday that the “additional payments tied to the issues identified in the Market Conduct Examination were about $40,000 in the context of more than $5.7 billion paid.”

The alleged violations each carry a fine of up to $5,000 in general and up to $10,000 if they are found to be willful.

The department said the alleged violations could bring penalties of $2 million or more. Soller said regulators also want State Farm to make policyholders whole, but does not have authority to order restitution

Soller noted that is why the department is sponsoring a bill by state Senate Insurance Committee Chair Steve Padilla (D-Chula Vista) that would require insurers to pay restitution directly to policyholders.

State Farm released a statement April 22 that outlined five “commitments” to policyholders.

They included providing single points of contact and improved communication so there are “fewer handoffs, fewer repeated explanations, and seamless support.”

Fire victims have long called for a crackdown on the insurer and to bar a rate increase State Farm was seeking until it resolved their complaints. They also called for Lara’s resignation, claiming he was not enforcing the law, while he contended the market conduct exam needed to take its course.

The company was ultimately granted a 17% rate hike in March after a three-way agreement that also involved Consumer Watchdog, which had intervened in the matter as allowed under state law.

Joy Chen, executive director of Every Fire Survivor’s Network, a community group that led the calls to stop the rate hike and for Lara’s resignation, said the insurer must make harmed policyholders whole.

“We call on the department to act on every outstanding complaint, and report transparently on outcomes. State Farm’s parent sits on $240 billion in assets. They have the money to fulfill their obligations to L.A. fire survivors,” Chen said.

Possible sanctions against State Farm are a “positive development” but mean little in practice for Pacific Palisades property owner John Hurley, who continues to fight the insurer to mediate asbestos and heavy metal contamination from the fire nearly 16 months ago.

He said State Farm stopped reimbursing him for lost rent on the unrepaired house. Hurley has filed at least half a dozen complaints with the state insurance department, to little avail.

“I unfortunately feel the insurance companies and the state are somewhat allies,” Hurley said. Even if the state agency were to prevail in sanctions against State Farm, “who gets the money? The state … or the insured?”

Times staff writer Paige St. John contributed to this report.