California Seeks Millions in Penalties Against State Farm

The California Department of Insurance filed an administrative action against State Farm General Insurance Company on May 4, 2026, seeking millions of dollars in penalties and a possible one-year suspension of the company's license to write new policies. The move follows an investigation into 220 sample claims from the January 2025 Palisades and Eaton wildfires in Los Angeles, which uncovered 398 violations of state law across 114 files. These violations included underpayment, processing delays, the frequent reassignment of adjusters, and the illegal denial of hygienic testing for smoke damage.

Insurance Commissioner Ricardo Lara stated that the company buried policyholders in red tape. The state is pursuing penalties of up to $10,000 per willful violation, potentially totaling $4 million, marking the largest amount pursued for a wildfire disaster this century. The action coincides with efforts to penalize the FAIR Plan for similar smoke-damage failures and proposed legislative reforms including the Disaster Recovery Reform Act.

State Farm rejected the allegations, calling the action a reckless and politically motivated attack based on a thin sample of administrative errors. The company asserted it has paid over $5.7 billion for between 11,700 and 13,700 related claims and argued that the identified violations would require only $40,000 in additional payments. The insurer further characterized California's insurance market as the most dysfunctional in the country. The dispute has drawn criticism of the insurer from Governor Gavin Newsom, Los Angeles County officials, and President Donald Trump.