The question in this blog title arose because I attended a celebration of life yesterday for my first legal mentor, Paul Butler, whom I mentioned in “Paul Butler Passes.” The leaders of State Farm are faced with this question as you read about it in this post. Paul would say to do the right and just thing. That does not mean admitting wrongdoing when one has done no wrong, nor agreeing with others without serious reflection and thorough investigation on important matters. I wish everyone had been with us at Paul’s service so you could fully understand where my heart is while I write this post.
The California Department of Insurance has now moved beyond investigation and into a formal accusation against State Farm General Insurance Company regarding the California wildfires of January 2025. 1 I last noted this in “Why Is the State Farm Wildfire Market Conduct Exam Taking So Long? This Matters to Los Angeles Policyholders.” The filing reads like something many of us have been saying for months. The Department alleges 398 violations tied to the handling of claims from the January 2025 Eaton and Palisades wildfires. The violations were not found in a handful of outlier files. They appeared in more than half of the 220 sampled claims.
The allegations are serious and concern delays in investigation, failure to timely pay, underpayment, assignment of multiple adjusters causing policyholder confusion, and failure to communicate. One which I have been harping on, and especially with personal property, is improper depreciation. Wrongful smoke damage disputes were alleged, just as I noted in “Are California Insurers Playing ‘See No Evil’ When It Comes to Wildfire Smoke?” There are allegations of verbal denials instead of written explanations. Misstatements about policy provisions are alleged. The Department even alleges that State Farm used the wrong policy provision to deny hygienist testing, something the company has reportedly acknowledged should not have been done.
Those of us who have been in the trenches representing policyholders suffering from these wildfires will not be surprised. What is striking is not that these issues occurred. What is striking is that they occurred so frequently in a relatively small sample. When violations appear in over half the files reviewed, it raises the question of whether we are looking at isolated errors or the product of systemic wrongful claims handling.
That question leads to a much more important one. If State Farm truly embraces its long-standing branding as a “Good Neighbor,” what should it do now?
A claims handling expert wrote to me after reviewing the California filing. His comments are worth serious reflection. He said he could not help thinking that an insurer producing violations with this frequency has an entire book of catastrophe claims that cry out for independent reinspection. He then noted that the idea that the insurer would voluntarily submit to or pay for such an exercise in fairness seems almost preposterous in an era where insurance companies fight against everything said against them. He added that regulation is not helping those policyholders whose claims were not included in the sampled files, and that regulators may have seen only “the elephant’s toe” without confronting the full problem. To me, and after Paul’s ceremony, that observation hits at the core of the issue.
If you are an executive at State Farm and you truly believe in the “Good Neighbor” philosophy, what do you do when your regulator tells you that more than half of the claims it reviewed had violations? Do you say these were file-specific errors and move on? Or do you ask a harder question and risk finding out how many other of your policyholders were affected in the same way?
A true good neighbor does not wait to be sued to do the right thing. A true good neighbor does not parse whether a violation is technically a “general business practice” or merely repeated “mistakes.” A true good neighbor looks at evidence like this and says, ” We need to make sure every customer was treated fairly, not just the ones the regulator happened to review.”
That would mean an immediate, comprehensive response. It could mean engaging an independent third-party claims auditing firm to reinspect wildfire claims across the portfolio. It could mean an internal reinspection initiative with clear authority to reopen files, pay additional amounts where warranted, and communicate transparently with policyholders. It could mean proactively reaching out to insureds in an honest manner rather than waiting for them to complain or litigate.
Will that happen?
History suggests that insurers rarely take that step voluntarily. It costs money. It invites scrutiny. It creates admissions that may be used in litigation. It is easier to argue that the regulator’s sample was limited and that corrective training will fix the issue going forward. But that approach ignores the people already harmed. It ignores doing the right and just thing.
The California Department of Insurance’s action is important. It shines a light on alleged patterns of conduct. It creates the possibility of penalties and corrective measures. But it does not, by itself, fix the claims of those who were not part of the sample. Those policyholders remain out there, dealing with underpayments, delays, and unresolved disputes.
That is why the question of what a “Good Neighbor” does next matters more than the accusation itself. If State Farm wants to live up to that brand, this is the moment to prove it. Not in advertising, not in press releases, but in action. The company has an opportunity to show leadership by ensuring that every wildfire policyholder was treated in good faith, not just the ones regulators happened to review. The alternative is to treat this as another regulatory dispute, fight over the characterization of violations, and leave thousands of policyholders to fend for themselves.
Good neighbors do not do that.
Paul Butler never confused courage with concession. He demanded preparation, honesty, and the willingness to confront hard facts, even when doing so was uncomfortable or costly. He would be the first to say that allegations are just that until proven, but he would also insist that serious allegations call for serious introspection. The measure of character is not how a person responds when everything is easy, but how one responds when questions are hard and the spotlight is on. This is one of those moments.
Thought For The Day
“Leadership is not about being in charge. It is about taking care of those in your charge.”
— Simon Sinek
1 Accusation, Order to Show Cause, Notice of Penalties, Notice of Hearing, In the Matter of the Certificate of Authority of State Farm Gen. Ins. Co., Cal. Ins. Comm’r File No. OSC-2026-00001 (May 4, 2026).