California Wildfires and Related Insurance Claims Show No Signs of Stopping

“We can’t stop and we won’t stop.” Is this the refrain to a Miley Cyrus song, the creed of the thousands of firefighters currently battling California’s wildfires, or the mantra of the fires themselves? While any self-respecting Miley fan knows these are the lyrics to her hit “We Can’t Stop,” everyone who has seen the footage coming out of the California wildfires knows that the fires have been ferocious in their destruction, and the firefighters have been equally unrelenting in their efforts to contain them. Unfortunately, and fortunately, there is no wrong answer.*

On November 1, 2018, the governmental National Interagency Fire Center (“NIFC”) predicted that the potential for “significant wildland fire[s]” was “above normal” for much of California in the month of November due, in part, to pockets of “critically dry fuels,” or the dried vegetation that feeds a fire. It took a little more than one week for NIFC’s prediction to become a terrifying and destructive reality.

In the span of just eight hours on November 8, the Camp and Woolsey fires began in northern and southern California, respectively. Approximately 9,400 fire personnel have worked tirelessly to try to contain the fires and limit the loss of life (both human and animal) and the destruction to property. Despite the heroic efforts of these women and men, the devastation has been staggering.

According to the California Department of Forestry and Fire Protection (“CAL Fire”), the Camp fire has scorched approximately 140,000 acres in northern California. In addition to the tragic loss of at least 56 lives (with 130 people still unaccounted for), more than 8,750 residences and 260 commercial properties have been destroyed. An additional 15,500 structures remain threatened. While it is just 40% contained, CAL Fire has deemed the Camp fire the most destructive and deadliest wildfire in California’s history. Prior to the Camp fire, California’s most destructive wildfire was the October 2017 Tubbs fire in Napa and Sonoma Counties, while the deadliest California wildfire was the 1933 Griffith Park fire which claimed the lives of 29 people.

The Woolsey fire has burned more than 98,000 acres in suburban Los Angeles. Preliminary estimates show more than 500 structures have been destroyed. Although 57% of the fire is contained, an additional 57,000 structures remain threatened. Trulia estimates that median home values in some of the areas impacted by the Woolsey fire exceed $1 million.

The Camp and Woolsey wildfires will undoubtedly result in significant sums of money being paid out by homeowners’ insurers and commercial property insurers. In fact, some estimate that these fires “could cost the state, insurers and homeowners at least $19 billion in damages. . . . [and] could be on par with the type of destruction triggered by Hurricane Michael” earlier this year in Florida. According to a November 12 report issued by Moody’s Investors Service, its initial estimates indicate that homeowners’ and business owners’ insured losses from the Camp and Woolsey fires as well as the Hill fire in southern California will total between $3 billion and $6 billion. In releasing this estimate, which reflects both the size of the fires and the costs of rebuilding, Moody’s made clear that this estimate will likely increase as the fires continue to burn.

All of this is against the backdrop of an already very active and costly couple of years for wildfires in California. Indeed, this summer’s Mendocino Complex fire, the largest wildfire in California’s history, burned more than 459,000 acres. California’s second largest wildfire, the Thomas fire in Ventura and Santa Barbara Counties, which burned more than 281,000 acres, occurred in December 2017. These two fires along with the Tubbs and Carr fires have led to more than $13 billion in payments by property insurers since October 2017.

And there is no reason to believe the risk of wildfires will decrease in the near future or the fires will be less destructive when they do happen. In fact, earlier this week California Governor Jerry Brown said that large wildfires are now the “new abnormal. And this new abnormal will continue certainly in the next 10 to 15 to 20 years. Unfortunately, the best science is telling us that dryness, warmth, drought, all those things, they’re going to intensify.” Chris Folkman, senior director of product management at risk modeler RMS, agreed and explained that “forty percent of the new residential buildings built between 1990 and 2010 in California were in the Wildland Urban Interface, areas at the highest risk of wildfire.” Folkman said the risk of wildfire is also exacerbated due to “changing climate, prolonged drought, high winds, and a firefighting philosophy of aggressive fire suppression that lasted for a century up until the early 2000s producing a legacy of burnable vegetation.”

We have previously discussed the issues and challenges first-party property insurers and their insureds may face in adjusting wildfire-related claims. Those issues include whether a policy’s “physical loss or damage” provision is triggered where the insured property is not damaged or destroyed by flames, but suffers smoke, dust and/or soot damage. Specifically—and depending on the policy language—to the extent that the “physical loss or damage” requirement is not met, coverage for business income losses may also be unavailable. Given the mandatory evacuation orders that were issued following the Camp and Woolsey fires, the issue of whether a policy’s civil authority provision provides coverage for the income a business loses (even if the insured business itself incurred no physical property damage) will also likely be relevant. 
*Miley Cyrus’ home was destroyed in the Woolsey fire. The Associated Press reports that Miley Cyrus and Liam Hemsworth have donated $500,000 to the Malibu Foundation through Cyrus's Happy Hippie Foundation to help those affected by the fires. 

Posted  by Lindsey Davis