This is the second of a two-part series examining what State Farm’s internal claims materials may mean for litigation arising from the Eaton and Palisades wildfires. It follows yesterday’s post, State Farm’s Wildfire Claim Playbook: The Rules Behind Smoke, Soot, Ash, and Valuation. The first article addressed State Farm’s Operation Guides and the standards governing personal property, replacement cost, depreciation, debris removal, increased dwelling coverage, ordinance and law benefits, and other valuation issues. It also focused on one of the largest points of contention in Los Angeles wildfire claims: how industrial hygienists and environmental consultants investigate smoke, soot, and ash contamination.

This article addresses the next question. How do policyholders determine what State Farm actually told its adjusters, managers, industrial hygienists, environmental consultants, remediation contractors, and estimating personnel to do? More importantly, how do they determine whether an underpayment was an isolated mistake or the predictable result of a broader claims-handling process? The answer is discovery that follows the claim system rather than stopping with the individual adjuster.

The Department of Insurance Is Investigating, But Civil Discovery Can Go Deeper

The California Department of Insurance has filed an Accusation and Order to Show Cause against State Farm following its examination of Los Angeles wildfire claims. The Department alleges hundreds of claims-handling violations identified through its examination and consumer complaints. Smoke damage claims represented nearly half the complaints reviewed by the Department. The allegations include failures to issue required written denials concerning industrial hygienist and environmental testing, misclassification of testing expenses, and misrepresentations regarding policy provisions governing inspections. State Farm is entitled to contest those allegations before an administrative law judge.

Civil litigation can ask additional questions. Who developed the smoke-testing procedures? Who selected the consultants? What were they instructed to test? What was the goal and motivation for changes and measurements of claims results? Did State Farm limit the number or location of samples? What happened when a consultant recommended broader testing or remediation? Were adjusters evaluated on accuracy and customer service, or were cycle time and claim severity also part of the equation?

A regulator may determine that a legally required letter was not sent. Civil discovery can reveal whether that omission was accidental, caused by inadequate training, built into a form-letter system, or part of a practice that avoids making a clear coverage decision or motivates to reduce claims payments to policyholders. There is a difference between identifying a violation and examining the machinery and motivations that produced it.

Los Angeles County Has Already Identified Much of the Necessary Discovery

Los Angeles County Counsel’s investigation provides a useful starting point. County Counsel has sought State Farm’s wildfire claim databases, aggregate claim information, communications, claim outcomes, manuals, training materials, bulletins, directives, and changes to fire and smoke claim-handling practices. The County has also asked about catastrophe adjusters, artificial intelligence used in claim review, and materials supplied to the Department of Insurance.

This request recognizes that a claim-handling system and how it is derived and measured is rarely found in one document. It may be spread across Operation Guides, California jurisdictional references, catastrophe bulletins, training courses, job aids, claim-system prompts, management emails, vendor assignment forms, quality plans, performance reviews, dashboards, software rules, company annual goals, regional planning goals, claims department goals, and oral instructions given during claim-team meetings.

Policyholder lawyers should ask many of the same questions County Counsel is asking, but they should connect those questions to the decisions made in the client’s claim. The goal is to trace the decision from the corporate instruction to the consultant’s assignment, from the consultant’s report to the remediation estimate, and from the estimate to the amount paid or denied.

A Training Roster Proves Attendance But Not the Learned Lesson

State Farm’s training histories show organized instruction on first-party claims, investigations, sampling, damage documentation, building and contents scopes, estimating, coverage analysis, personal property inventories, and financial handling. Those histories are useful, but they are only an index.

A course titled “Identify and Obtain Samples” does not reveal how adjusters were told to select sampling locations. A class called “Complete Scope of Coverage A” does not establish whether contamination in an attic, HVAC system, wall cavity, or insulation was supposed to be included. A record showing completion of contents training does not reveal what employees were taught about cleaning porous property rather than replacing it.

Policyholders need the training itself. This means analyzing videos, PowerPoints, instructor scripts, photographs, claim scenarios, examinations, answer keys, job aids, participant guides, manager talking points, and every materially different version used during the wildfire response.

Revision histories for these may be especially important. What was the instruction before the Los Angeles fires? What changed afterward? Was the change prompted by scientific information, regulatory guidance, customer complaints, litigation, vendor availability, or management concern about claim severity?

The hail litigation discussed in The Hail Claim Playbook: Why State Farm’s Training May Become Exhibit A in Oklahoma provides a warning. State Farm produced training lists, quality plans, performance assessments, portions of Operation Guides, standard claim processes, and jurisdictional materials. Yet the policyholders asserted that the underlying training videos had not been produced even after State Farm’s counsel reportedly located them. A claims-practice case cannot be fairly tried by course titles alone.

The Industrial Hygienist’s Assignment May Be More Important Than the Final Report

A consultant’s report may conclude that no significant wildfire contamination was found. Before accepting that conclusion, policyholders should determine what the consultant was asked to find. The assignment letter should be produced. So should every draft, email, text, work order, limitation, budget approval, and instruction relating to the inspection.

Did State Farm ask whether any wildfire residue was present? Did it ask whether the home could be safely occupied? Did it request a complete remediation protocol? Or did the assignment merely call for limited surface sampling in selected areas?  Those are not the same assignments.

Policyholders should obtain the sampling plan, property diagram, sampling-location photographs, field notes, chain-of-custody records, raw laboratory data, detection limits, blank and control samples, equipment-calibration records, analytical methods, invoices, and communications concerning additional testing.

They should determine who selected each sampling location. Was it the hygienist, the adjuster, or a vendor coordinator? Did the policyholder identify areas of concern that were not tested? Were recently cleaned or easily accessible surfaces sampled while attics, HVAC components, insulation, cabinets, closets, crawlspaces, fabrics, and other likely reservoirs were ignored?

A report stating that samples were “representative” should lead to the obvious follow-up question: representative of what?  A testing plan can be designed to investigate contamination. It can also be designed so narrowly that the chances of finding contamination are dramatically reduced. Testing should be a search for the truth, not an elaborate game of hide-and-don’t-seek.

I suggest considering Are California Insurers Playing “See No Evil” When It Comes to Wildfire Smoke?

The Raw Data Matters More Than the Polished Conclusion

Policyholders should not limit discovery to the final report. The raw results may show detections the narrative dismisses as background, insignificant, unrelated, or below an internal threshold. Draft reports may reveal that conclusions were revised. Communications may show that the consultant initially recommended additional testing, broader cleaning, removal of materials, or post-remediation verification. Discovery should identify every substantive change between drafts, who requested it, and why.

Policyholders should also obtain the standards, studies, reference materials, background ranges, comparison data, and decision criteria used by the consultant. What level of residue was considered meaningful? Who selected that level? Was it based on a published health or restoration standard, a consultant-created benchmark, or a criterion supplied by State Farm?

The absence of a universally accepted numerical threshold does not mean an insurer may select whichever threshold produces the least expensive result. It means the methodology and reasoning become more important.

A consultant should be able to explain why the testing performed was reasonably capable of answering the question presented.

The Vendor Relationship Must Be Examined Fairly but Thoroughly

Repeat work does not automatically establish bias. Large insurers need consultants who can respond quickly, manage substantial volume, and operate across catastrophe zones. A vendor may receive repeated assignments because they are competent, available, and efficient.

Still, the financial relationship is relevant. Policyholders should seek the consultant’s assignment volume, compensation, fee schedules, preferred-vendor status, performance reviews, audit results, complaints, corrective actions, and revenue received from State Farm during a reasonable period.

They should also determine whether State Farm tracks consultants’ outcomes. Does the company know how often a particular hygienist recommends no remediation, limited cleaning, extensive cleaning, removal, or replacement? Are consultants evaluated on technical quality and customer complaints, or also on turnaround time, testing cost, and the effect of their recommendations on claim severity?

A vendor scorecard can reveal what the company truly values. The question is not whether the consultant worked for State Farm before. It is whether the relationship or the assignment could have influenced the methodology or conclusion.

Cleaning Versus Replacement Is Where Science Becomes Money

Once the consultant defines the contamination, the valuation personnel define the payment. This is where policyholders should connect the industrial hygiene file to the remediation estimate.

Who decided which materials could be cleaned? What restoration standard was used? Did the estimate include containment, negative air, HEPA vacuuming, multiple cleaning passes, removal of porous materials, HVAC cleaning, deodorization, encapsulation, disposal, and post-remediation verification? Was the scope written by an industrial hygienist, remediation contractor, field adjuster, desk adjuster, or estimating specialist who never visited the property?

The estimate should identify the technical basis for each cleaning decision. “Wipe down walls” is not a scientific remediation protocol.

The same inquiry applies to contents. Who determined that a mattress, upholstered sofa, child’s toy, computer, artwork, book collection, clothing, or musical instrument could be restored? Was the decision based on an item-specific evaluation or a category-wide assumption?

Policyholders should also ask what happens when cleaning fails. Does State Farm pay for replacement? Does it pay for another attempt? Is the unsuccessful cleaning payment deducted from the replacement benefit? Was post-cleaning verification offered or required?

A cleaning estimate containing no meaningful method for determining whether the cleaning worked is only half an estimate.

The Native Estimate Is Far More Valuable Than the PDF

Policyholders should request Xactimate and XactContents information in native form. A PDF shows the estimate as it looked when printed. It does not necessarily reveal who created each line, what was deleted, which price list was used, whether a price was overridden, or how the scope evolved.

Discovery should include every estimate version, change report, audit history, user log, note, price-list selection, macro, template, sketch, photograph, line-item attachment, manual override, and management review.

The same applies to XactContents. State Farm’s Personal Property Claim Handling guide directs XactContents use for larger inventories and requires information concerning quantity, age, description, brand, model, place of purchase, condition, replacement cost, and amount of loss. It also contemplates claim-handler assistance and a Payment Tracker Worksheet accompanying payments.

The guide requires consideration of age, condition, normal life expectancy, unusual items, depreciation, and replacement cost. When depreciation differs from State Farm’s guide, the reason should be documented. The native data can show whether those requirements were followed. It can also show the collaboration between adjusters and when changes were made and by whom.

Who altered the policyholder’s description? Who substituted a lower-priced comparison item? What condition and useful life were selected? Was depreciation automatically applied or adjusted through human judgment? Were sales tax and delivery included? Were antiques, collectibles, custom items, and property with no realistic used market treated differently?

The Missing Operation Guides Should Be Requested by Number

The Operation Guides already produced identify other guides central to wildfire valuation that were not included in the production reviewed. What is missing is the Index to all Operation Guides and the historical changes to the operation guides.

The attached examples of the Personal Property Claim Handling guide refer to OG 75-01, First Party Claims Guidelines and Requirements; OG 75-50, Betterment, Depreciation and Actual Cash Value; and OG 784-100, XactContents General Information. Those cross-references provide a discovery map.

Policyholders should request each applicable guide by number, including the version in effect on the date of loss, every version used while the claim remained open, the preceding and succeeding versions, revision histories, redlines, authors, approvers, and stated reasons for material changes. They should also request California jurisdictional references and catastrophe-specific instructions supplementing the national guides.

State Farm’s documents repeatedly state that the applicable policy and jurisdictional law control and that unusual claims should be elevated to management. Its ordinance and law guidance also contemplates event-specific code information being added to the claims system after a catastrophe.

That produces a direct Los Angeles discovery question: What event-specific information was added or changed for the Los Angeles fires of 2025? The follow-up is who participated in any changes and why were changes made or not made?

Every Coverage Needs Its Own Accounting

Policyholders should demand a coverage-by-coverage payment ledger. State Farm’s guides distinguish dwelling coverage, contents, increased dwelling limits, ordinance and law, debris removal, other structures, and additional benefits. The increased dwelling guidance includes allocation examples designed to maximize available coverage. The additional coverage materials also explain that debris-removal benefits may attach to more than one applicable coverage amount. This is not accounting trivia.

A single total-payment figure can disguise whether an expense was charged to the wrong coverage, a limit was prematurely exhausted, an additional benefit was never triggered, or a coverage was never evaluated. Discovery should identify the payment code, coverage code, reserve category, reason code, and calculation supporting every payment and withheld amount.

Follow the money, but first make State Farm label the buckets.

Internal Communications Often Reveal How the Decision Was Made

Claim notes matter. They are not always the entire conversation.

Policyholders should request relevant emails, internal messages, texts, management referrals, authority requests, quality-review notes, escalation records, consultant communications, collaboration notes, and vendor-management communications.

The claim file may simply state, “Management reviewed and agrees.” Discovery should identify which manager, what was reviewed, what questions were asked, what contrary evidence existed, and whether the adjuster’s original recommendation changed after review.

This is particularly important where multiple adjusters handled the same claim. Every reassignment creates the risk that knowledge is lost, responsibility becomes diffuse, and the policyholder must start over.

Discovery should determine why each reassignment occurred, what handoff took place, the authority of each person on the file, whether the new adjuster reviewed the complete file, and whether management tracked the impact of repeated transfers on delay and customer complaints.

One Front-Line Adjuster Cannot Explain the Entire System

California policyholders should use person-most-qualified depositions under Code of Civil Procedure section 2025.230. Federal cases use Rule 30(b)(6). Both procedures are intended to obtain an organization’s prepared testimony on identified corporate subjects rather than merely one employee’s personal recollection. One witness is unlikely to know everything.

The person responsible for industrial hygiene vendors may know nothing about XactContents. The person responsible for catastrophe training may know nothing about payment coding. The manager supervising one claim may not know who wrote the smoke protocol or why it changed.

Policyholders should seek prepared witnesses concerning claims procedures, wildfire training, industrial hygienist selection, testing, remediation standards, Xactimate, XactContents, depreciation, ordinance and law, debris removal, increased dwelling limits, catastrophe staffing, quality review, performance measures, electronic systems, and corporate initiatives affecting wildfire indemnity.

At the beginning of each deposition, counsel should establish what the witness reviewed, whom the witness interviewed, which databases were searched, and what efforts were made to gather the company’s knowledge.

“I do not personally know” may be fair testimony from an individual employee. It is not necessarily an adequate response from a corporation designated to testify about its own system.

Pattern Discovery Should Be Focused

Not every wildfire case requires discovery into every State Farm claim in California. Overbroad discovery invites objections and can bury the important evidence beneath mountains of irrelevant material.

A better approach is to identify a reasonable comparator group. That might include claims arising from the Eaton and Palisades fires involving standing homes, alleged smoke or ash contamination, the same policy form, consultant, claims unit, or testing and cleaning protocol.

Relevant information may include inspection dates, adjuster assignments, consultants used, samples taken, recommendations, estimated remediation amounts, payments, denials, complaints, reopenings, and litigation. The purpose is not to try hundreds of other claims. It is to determine whether the disputed practice repeatedly produced the same outcome.

An isolated error looks different from a standardized process applied hundreds of times.

State Farm Is Entitled to Explain the Evidence

Fairness requires acknowledging State Farm’s position. State Farm says it evaluates wildfire and smoke claims individually, works with customers, contractors, and service providers to determine necessary repairs, and remains committed to resolving concerns. It has reported handling more than 11,000 claims and paying billions of dollars arising from the Los Angeles fires. It also acknowledges that a catastrophe of this scale could not produce a perfect process and says it continues training, coaching, and reviewing claim handling. Those are important facts.

A catastrophe response is extraordinarily difficult. An insurer must mobilize adjusters, experts, contractors, temporary housing assistance, and billions of dollars while conditions, science, repair costs, and policyholder needs continue to change. A mistake does not automatically prove bad faith. A difference of expert opinion does not necessarily establish a scheme. Repeat vendors are not inherently biased, and insurers need not accept every proposed testing or remediation expense.

But neither the size of the catastrophe nor the total amount paid answers whether a particular investigation was reasonable. State Farm should be allowed to show that its procedures were designed to identify contamination fairly, that consultants exercised independent judgment, and that estimates reflected necessary work.

Policyholders should be allowed to test those assertions with the actual documents, data, training, and corporate testimony. That is what discovery is for.

Was the Outcome a Mistake or a Method?

Most bad faith lawsuits begin with one policyholder and one claim file. The adjuster may have missed damage. A consultant may have selected poor sampling locations. An estimator may have omitted a line item. A supervisor may have misunderstood a coverage. Those can be isolated mistakes.

But when the same sampling plan, consultant, cleaning assumption, valuation template, management instruction, and payment outcome repeatedly appear, the explanation may be different.

The policyholder’s task is to connect the parts. What did State Farm promise? What did its guides require? What did it teach its people? What assignment did it give the consultant? What did the raw data show? What scope was entered into the estimate? What did management approve? What happened in comparable claims?

The individual claim tells us what happened. Corporate discovery may tell us why and whether a wrongfully handled claim was isolated and possibly a mistake. Alternatively, was the wrongfully handled claim a planned and systemic claims issue?

Thought For The Day

“We’ll keep measuring our progress the way customers do—by showing up, following through, and delivering when it matters most.”
—Jon Farney, President and Chief Executive Officer of State Farm