California finds hundreds of violations after investigating sample of State Farm fire claims
Following its investigation into State Farm’s claims practices, the California Department of Insurance has found 398 violations related to the 2025 Los Angeles wildfires.
CDI announced Monday that it is seeking millions of dollars in penalties, which it claims is the largest amount pursued this century following a wildfire disaster.
The department filed an Accusation and Order to Show Cause against State Farm. It says this is the first step toward a public hearing before an administrative law judge.
The filings allege violations of the Unfair Insurance Claims Practices Act and related regulations, including the 398 violations identified by CDI’s Market Conduct Examination, plus 34 violations based on consumer complaints.
California Insurance Code penalties may reach $5 per violation, or $10,000 per willful violation. They may be imposed by the insurance commissioner following the administrative hearing.
Insurance Commissioner Ricardo Lara ordered the Market Conduct Examination after his office received 11,300 residential claims complaints filed by State Farm policyholders. State Farm complaints accounted for one-third of the 38,835 claims filed across all insurers.
“Wildfire survivors came to us for help, and we followed the facts,” said Lara in a press release. “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.”
The department identified the 398 violations in 114 claims after reviewing a sample of 220 claims, the release says.
Major violations included slow and inadequate investigation, the release says. It adds that State Farm failed to begin investigating claims within 15 days. It also failed to accept or deny claims within 40 days and to pay accepted claims or provide written notice of the need for additional time within 30 days, as required by law.
The investigation also found underpayment of claims, which it called unreasonably low settlement offers.
State Farm also failed to assign adjusters within statutory timelines and repeatedly reassigned adjusters, creating what survivors described as “adjuster roulette.”
Smoke damage claims represented nearly half of all consumer complaints, the release says. Examiners found that State Farm failed to provide required written denials for hygienist and environmental testing, misclassified testing costs, and misrepresented policy provisions related to inspections.
State Farm also failed to respond to policyholders, send required status letters, or provide notice when additional time was needed to determine claims.
In Missouri, Fox 4 reports that U.S. Sen. Josh Hawley is threatening to subpoena State Farm if it doesn’t comply with an inquiry he sent them last month.
Hawley demanded that State Farm pay policyholders for tornado damage that occurred in 2025, and asked the company to answer questions about its claim practices in the state in a letter that he made public in April.
He gave the insurer until May 14 to answer questions, including how many insurance claims were brought by property owners and how many policyholders had yet to receive a final adjudication.
Hawley notes that just days before the storm, a State Farm executive testified under oath before his subcommittee that the company pays its policyholders “promptly, courteously, and efficiently.”
“It is disappointing, but not surprising, that these words were an empty promise,” Hawley said.
During the subcommittee hearing, Hawley grilled Allstate and State Farm executives, saying testimony from adjusters and policyholders, along with previous lawsuits, appears to show the companies are “running a racket” and “pattern of fraud” while making “outrageous profits.”
The Homeland Security & Governmental Affairs Subcommittee on Disaster Management, District of Columbia, and Census heard from two adjusters who testified that they were pressured to lower estimates.
State Farm claims handling practices, including a shift to a centralized claim review process, labor rate reductions, and other claims practices, were a topic of contention with regulators and attendees at collision industry events last month.
Michael Bradshaw, vice president of K&M Collision in Hickory, North Carolina, brought forward examples of claims review challenges that he and others in the industry experience, in which insurance carriers are “tactfully taking the relational aspect out of claims.”
Bradshaw spoke on the subject at the Society of Collision Repair Specialists (SCRS) Board of Directors open meeting on April 21 in a question-and-answer session with North Carolina Insurance Commissioner Mike Causey, and again during an open mic session at the Collision Industry Conference (CIC)’s April 22 meeting. Both meetings were held in Charlotte.
A P&C Specialist article, also recently explored changes State Farm has made to its auto claim practices, including moving to centralized auto claim audit teams and cutting labor rates.
“The Bloomington, Illinois-based insurer has lowered labor rates by as much 20% in the past eight months, depending on the location of the repair shop,” the article states. “It is also increasingly leveraging its audit team to review estimates written by its own staff adjusters and has modified policy language related to reimbursements for labor, sources said.”
Image
Photo courtesy of youngvet/iStock