California officials took legal action Monday against State Farm, accusing the insurer of unlawfully delaying, denying and underpaying home-insurance claims from survivors of last year’s Los Angeles wildfires.
The state is seeking millions of dollars in damages, the highest penalty sought this century following a wildfire disaster, the California department of insurance said Monday. Its legal filing also seeks the power to suspend State Farm’s license to operate in the state for up to a year.
The regulator’s move is another reputational blow for State Farm, the nation’s biggest home- and auto-insurer. President Trump last month lambasted the company’s “absolutely horrible” response to the L.A. infernos.
State Farm said it strongly disagreed with the allegations. “Wildfire survivors deserve real solutions – not a distorted picture of State Farm’s response,” the company said. “We reject any suggestion State Farm engaged in a general practice of mishandling or intentionally underpaying wildfire claims.”
The company added that the California regulator should take responsibility for its part in making the state’s insurance market “the most dysfunctional in the country.”
State Farm has paid $5.7 billion in claims following the disaster, and the tally could reach $7 billion, according to its website. The company insured more people affected by the disaster than any other, it added.
The Los Angeles blazes were the costliest wildfires in world history, with total insured losses estimated at $40 billion. The fires destroyed more than 12,000 structures and killed at least 31 people. Insurers have come under fire for their handling of the aftermath, particularly their treatment of claims for smoke damage.
State Farm is the second company to face the legal wrath of California regulators over the disaster. Officials last year announced enforcement action against the California Fair Plan, the state’s insurer of last resort, for allegedly “systematically denying and limiting smoke damage claims from wildfire survivors.”
Representatives of the Fair Plan didn’t immediately respond to a request for comment. The plan has previously said it carefully reviews each claim on its own merits and pays “all covered claims up to the policy limits, including those for smoke damage.”
The department’s action against State Farm follows an investigation of the insurer’s handling of claims from the L.A. disaster, which was made public Monday as part of their legal filing. Officials said the probe detected unlawful behavior by the insurer in more than half the sample of 220 claims examined.
The alleged failures by State Farm included “unreasonably low” settlement offers, as well as underpaid claims. The insurer also reassigned claims adjusters repeatedly, creating what survivors described as “adjuster roulette,” according to officials.
“Wildfire survivors came to us for help, and we followed the facts,” said Ricardo Lara, California’s Insurance Commissioner. “Our investigation found that State Farm delayed, underpaid, and buried policyholders in red tape at the worst moment of their lives.”
The legal action filed by the department is the first step in a potentially drawn-out process, which could lead to a public hearing before an administrative law judge.
Supervisor Kathryn Barger, who represents Altadena, which was devastated by the Eaton fire, said she supported the state’s enforcement action.
“This sends a clear message: exploiting disaster victims will not be tolerated,” Barger said. “It is unacceptable that wildfire survivors—people who have lost everything—were met with delays, underpayments, and roadblocks when they needed help the most.”
A spokesperson for L.A. Mayor Karen Bass said she supports “maximum pressure on the insurance industry,” and said that “for so many wildfire survivors, insurance delays, denials and underpayments are making it impossible to rebuild.”
Write to Jean Eaglesham at Jean.Eaglesham@wsj.com and Laura J. Nelson at laura.nelson@wsj.com
