State Farm violated the law, a CA investigation found

from Levi SumagasaiCalMatters

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State Farm could face millions of dollars in fines and a possible suspension of its license in California as a result of hundreds of alleged violations of the law related to the handling of fire claims in Los Angeles County last year.

California’s largest provider of individual property insurance “has demonstrated a troubling pattern of claims-handling practices” since the fires, the state Department of Insurance said Monday. The department is seeking a hearing on the matter, which comes after an investigation that began into State Farm’s conduct last June.

“Our investigation found that State Farm delayed, underpaid and buried policyholders in red tape at the worst time of their lives,” Ricardo Lara, state insurance commissioner, said in a statement.

State Farm did not immediately respond to CalMatters’ questions about the department’s legal action.

If an administrative law judge finds that the 430 claims have merit, each violation is subject to a penalty of up to $5,000. Willful violations of the law are subject to penalties of up to $10,000 each. That means the company could owe up to $4.3 million. Insurers have paid out billions of dollars in claims from the deadly fires in the Los Angeles area, with State Farm saying it has paid out more than $5.7 billion so far.

The insurance division launched an investigation into State Farm, which insures about one-fifth of California homeowners, last year after complaints from fire survivors that the company was delaying and denying claims.

The investigation, which included 220 claims related to the fires, found violations in 52 percent of them, according to the department’s indictment filed Monday. These include slow and inadequate claim investigations, underpayment, multiple assigned corrective claims, and delayed communication with policyholders. In some cases, the department asked State Farm to reopen claims and correct its violations, according to the indictment.

After a hearing, which has not yet been scheduled, any determination of the administrative law judge will be reviewed by the commissioner. The commissioner will impose penalties and decide whether to suspend for one year the company’s certificate of authority, which gives it the right to sell insurance in the state.

It’s unclear what will happen to State Farm customers if the company is shut down for a year, said Michael Soler, a spokesman for the insurance department, which is trying to ensure that insurance companies continue to offer insurance coverage in California.

“Between the scope of the fires and the scope of this company, we’re in pretty unprecedented territory,” Soler said.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.