Revisiting the Risks Posed by Wildfires

Early property insurance policies, first introduced in seventeenth century England, insured against only a single peril: fire.[1] That made sense at the time—most structures were wooden, making fire the most common risk of loss. Yet, in modern times with ever-changing and expanding risk profiles, fire is no longer the singular menace to property it once was.

Nevertheless, with wildfires on the rise worldwide, and a wealth of climate science predicting an increase in the severity and frequency of such disasters, property insurers must reevaluate the associated risks. While fire has traditionally been considered a peril confined to individual or adjacent properties, wildfires present a much broader risk, creating NatCat exposure of comparable magnitude to hurricanes, floods, and earthquakes. As Hiscox Re stated in a recent white paper, the industry must now recognize wildfire as a serial offender.

For example, in Australia, out-of-control fires burned for months, scorching an area more than five times the size of Wales, and industry-wide insurance claims of at least $480 million are expected. In 2019, intense heat and drought helped spread fires across roughly 1,300 square miles in Europe, scorching 15 percent more land than the decade’s annual average. As a result, the European Union, for the first time, labeled forest fires as “a serious and increasing threat.” The United States is also no stranger to the recent catastrophic impact of wildfires. The 2017 and 2018 California wildfires caused $25 billion in damage, much of which landed in the laps of insurance companies that may have discounted fire as a major calamity. As a result, local regulators temporarily banned insurers from refusing to renew home-insurance policies in certain wildfire-prone parts of California in an effort to halt an “insurance-availability crisis.”

Putting aside the human toll these catastrophes take, wildfires cause damage to property and infrastructure, as well as causing potentially severe interruption of activity within or near the fire affected zone. Indeed, time element losses, including business interruption, contingent business interruption, and extra expense, may well be the greatest insurance risks posed by wildfires.[2] For example, time element coverage may cover the various costs associated with fire-related power outages, blockages to accessing an insured premise, or interruption caused by an order of civil authority.

Thus, with the increased risk of wildfire in mind, property insurers must consider whether their policies are sufficiently attuned to address this “new” peril. For example, while many CAT events arise from a “single event” with unity of time, location and cause, wildfires often have multiple sources of causation and can cause continuous damage for months.[3] This reality can impact, inter alia, the application of a policy’s occurrence definition and hours clause, which determine whether a covered peril will be deemed a single aggregated loss.[4] Additionally, insurers must consider whether their policies, as written, offer coverage for losses due to civil authority orders, common in the wildfire context, even where the insured property was not physically damaged by the fires. See, e.g., Syufy Enterprises v. The Home Insurance Company, 1995 WL 129229 (N.D. Cal. 1995) (where the policy at issue required the order of civil authority be not only in response to physical damage to property but, also, the damaged property had to be “adjacent” to the insured premises). Finally, wildfires can continue to cause damage long after the fire itself is extinguished in the form of erosion or mudslides. However, Californian courts have found that earth movement exclusions do not preclude liability for mudslide losses where the proximate cause is wildfire.[5]

While the modern property policy no longer limits coverage solely to fire-damage, the unique risks posed by massive wildfires around the world require industry-wide attention, and a reexamination of the age-old peril. 

Posted by Peter Kelly Golfman


[2] Business interruption a key exposure of ferocious California fires, Insurance Business (March 16, 2018); available at:

[3] Reinsurance market feels the heat from wildfire, Hiscox Re (May 19, 2019); available at:


[5] Calif. Landslides Prompt ‘Efficient Proximate Cause’ Rehash, Insurance Law360, Jennifer A. Hoffman, Zelle LLP (May 4, 2018); available at