State Farm Could Be Punished for Handling of LA Wildfires
California Insurance Commissioner Ricardo Lara suggested State Farm could be investigated for the way the insurer handled the 2025 Los Angeles wildfires.
Lara made the comments while answering questions from 200 State Farm policyholders affected by the recent fires.
During the Zoom session in early May, 200 survivors of the Palisades and Eaton fires complained about long claim delays, difficulty testing for toxic substances, and low cash offers on destroyed or damaged homes, among other issues.
As the Los Angeles Times reports, Lara acknowledged State Farm – the country’s largest property and casualty insurer – could undergo a “market conduct” exam to assess the validity of these complaints, stating, “it’s not off the table” and “we are not necessarily opposed to that.”
California’s Department of Insurance has previously launched market conduct exams to address similar concerns.
State Farm Responds
State Farm responded to Lara’s suggestion hours later, arguing the company has the largest claims force in the industry.
State Farm also emphasized the company was focused on helping policyholders recover from “the largest fire event we have ever experienced in the state.”
As of May 20, State Farm has received more than 12,750 total claims linked to the Los Angeles fires while paying more than $3.6 billion to customers (across its auto and fire insurance coverages combined).
State Farm also signalled it had deployed its Catastrophe Response Team to help residents recover. That team consists of a dedicated, mobile workforce capable of going anywhere in the country to expedite claims processing.
State Farm & Other Insurers Facing Smoke Damage Lawsuit
State Farm and other California insurers are also facing a related lawsuit for the way they handled smoke damage claims following the 2025 fires.
State Farm and other licensed insurers in California run the state’s FAIR Plan, which acts as the insurer of last resort.
Last month, 10 victims across both the Palisades and Eaton fire zones sued the FAIR Plan – including State Farm and other insurers running the plan – for failing to properly investigate and pay for smoke damage.
A standard homeowners insurance policy covers fire damage and smoke damage. Smoke damage, however, is often more difficult to track than fire damage, leading to many insurance disputes.
One of the victims suing the FAIR Plan described tracking down the companies as “like a full-time job” because of the lack of communication.
Some are even asking Lara to pause State Farm’s proposed 22% rate hike until the investigation is complete (later in May, Lara approved a 17% rate hike on State Farm, down from the original request of 30%).
What Did State Farm Do?
At the May town hall, policyholders asked Commissioner Lara to investigate State Farm over a range of alleged practices during the aftermath of the Los Angeles fires.
Some of the allegations include:
- Long claim delays. Despite activating its Catastrophe Response Team, State Farm is alleged to have taken too long to process customers’ claims.
- Difficulty testing for toxic substances. After a fire, homeowners often need to wait for environmental testing to determine if the property is safe or needs professional remediation. This process can occur quickly after a single house fire, but it can take a long time after a widespread fire.
- Low cash offers. State Farm allegedly offered low payouts on destroyed or damaged homes, paying homeowners less than the perceived value of their property.
CalMatters interviewed two State Farm policyholders who waited 100+ days for the insurer to approve and process their claim.
Their home looked unscathed, but it had a thick layer of ash and soot and smelled like smoke. Upon testing, the house was found to have high levels of arsenic, lead, and nickel.
Repair and replacement costs were quoted at around $300,000. State Farm, to date, has paid the couple $40,000 – and they claim to have had trouble contacting the insurer about additional payments.
In other words, the homeowners cover all three of the complaint categories mentioned above – including long claim delays, difficult environmental testing, and a low cash offer.
Will an Investigation Occur?
According to a CalMatters investigation, Department of Insurance Commissioner Lara has already asked for details on how State Farm is handling claims from the Los Angeles fires.
In a letter to State Farm, Lara asked the insurer to explain their standards for reviewing and processing smoke damage claims.
Lara also reportedly asked State Farm to commit to providing a minimum of 75% contents coverage without requiring an inventory from fire survivors. State Farm had previously raised these limits from 50% to 65%.
Lara set a May 9 deadline for these requests. There have been few updates in the weeks since.
Ultimately, State Farm is expecting to pay around $7 billion to homeowners because of the Los Angeles fires – but the company could pay more if it faces a lawsuit or further punishment.
