Los Angeles wildfires’ far-reaching impact on the insurance industry

The wildfires in Los Angeles continue to rage and have destroyed or damaged more than 12,000 structures, mostly personal residences. Southern Californians will be impacted by the devastating aftermath for years to come. There will also be significant impact on the insurance industry both immediately, and in the long term.

On January 9, 2025, the California Department of Insurance issued Bulletin 2025-01 which precludes insurers from cancelling or refusing to renew residential property insurance policies for properties in designated zip codes within or near the fire perimeter for one year after January 7, 2025 (the date Governor Newsome declared a state of emergency). The moratorium includes non-renewals issued up to 90 days before January 7^th. Just three days later, Governor Newsome issued Executive Order N-4-25 suspending compliance with the California Environmental Quality Act and the California Coastal Act to “eliminat[e] barriers that unduly delay the rapid rebuilding of homes and other facilities” destroyed by the wildfires. Further, the insurance commissioner issued a declaration setting parameters for non-California licensed adjusters to be able to handle the incoming volume of claims and to expedite the rebuilding process. Homeowners’ insurers will, therefore, need to keep apprised of changes that will impact their response to these claims.

Insurers that issued homeowners’ policies will not be the only ones impacted by the destruction caused by wildfires. If the COVID-19 pandemic, or past natural catastrophe events such as Superstorm Sandy are guides, commercial property insurers should expect claims for property damage and business interruption from policyholders whose businesses were impacted by the fires.

In addition, liability claims are already being asserted against landowners and utility companies, which will implicate general liability insurance. We expect these claims to be largely negligence-based for the alleged failure to prevent, or mitigate, the destruction caused by the wildfires. In fact, on January 13, 2025, the first lawsuit arising out of the Palisades Fire was filed against the City of Los Angeles, acting by and through the Department of Water and Power. The Palisades Fire lawsuit alleges that the water supply system servicing areas around the Pacific Palisades failed on January 7, 2025, exacerbating the destruction of homes and business in the area. A second lawsuit, filed on behalf of homeowners, renters, evacuees and business owners against Southern California Edison, arises out of the Eaton Fire. The Eaton Fire lawsuit alleges that SCE negligently failed to de-energize its overhead distribution and power lines in Eaton Canyon despite being warned to do so, and that if SCE acted responsibly the Eaton Fire could have been prevented. General liability insurers can expect to be called upon to provide coverage for its insureds in connection with such negligence-based lawsuits.   

Adding a layer of complication, the cause(s) of the wildfires remain unclear and may be unknown for a significant period of time. For example, the media has reported that the Palisades Fire “appears to have human origins[1]” and “its cause is under investigation,” and that power lines were a “potential”[2] cause of the Eaton Fire.  It may take years to determine the party or parties responsible and that determination  (i.e., whether the cause was fire, windstorm, or some other cause) may have a significant impact on liability and coverage.

Beyond the initial claims handling concerns are those relating to operational costs to respond to the large number of claims, the potential for increased reinsurance premiums, additional challenges for risk assessment in high risk areas, and how to address such risks in underwriting insurance policies.

Kennedys is here to assist with offices throughout the United States and California, including Los Angeles.

 

[1] https://www.latimes.com/california/story/2025-01-12/on-an-ocean-view-trail-questions-swirl-about-what-and-who-started-palisades-fire

[2] https://www.nbcnews.com/weather/wildfires/are-arsonists-responsible-los-angeles-wildfires-rcna186949