There have always been wildfires in California, however, their severity and frequency have become worse. This session at the PARMA 46th Conference and Expo addressed coverage, liabilities and claims handling issues related to wildfire and landslide events.
- Dennis Timoney, Chief Risk Officer, Special District Risk Management Authority
- Kevin Hansen, Partner, McCormick Barstow, LLP
- Nicholas Rasmussen, Partner, McCormick Barstow, LLP
Fires affect hydrological processes. They cause chemical changes to the soil and hydrophobic (water repellent) soils are created. During a post-wild land fire rainstorm, a number of fire-related mechanisms combine to increase runoff, peak flows, erosion and debris production. In fact, the water repellency in the soil limits water infiltration, which opens a window for debris flow as long as three-to-five years. This causes things like flooding and mudslides.
Coverage issues are arising. Homeowners are underinsured (only 68% have adequate coverage). After events, there becomes a “demand surge” for architects, contractors and other laborers, leading to dramatically increased prices or “loss amplification.” The demand surge risk is compounded by the fact that many policyholders assume that automatic inflations adjustments to policy limits suffice to keep up with inflation and increasing costs of code and standard compliance.
Fire is a covered cause of loss, however, most policies preclude coverage for earth movement, landslide, mudflow, subsidence and mudslides.
The “Efficient Proximate Cause” doctrine in California law may apply where both a covered cause of loss and non-covered causes result a loss. In other words, the efficient proximate cause of a loss is that original cause that can set others in motion, resulting in the subsequent losses. For example, if there is a fire that causes debris flow, the debris flow damage will often be covered because it would not have happened if there was no fire. California courts are using this doctrine to determine what insurance companies should cover in these circumstances. This is significant because these are losses that would have been declined prior to this doctrine. It has been a bitter pill to swallow for insurance companies.
Wildfires are also causing various liability issues. One large area is in fault and subrogation. For instance, if a neighbor builds a barrier wall that diverts mudflow onto an insured’s property and causes damage, the insurer may sue the neighbor on behalf of the insured. How does this affect public entities? According to Government Code 815, except as otherwise provided by a statute, a public entity is not liable for injury, whether such injury arises out of an act or omission of the public entity or a public employee or any other person. A public entity has no liability for any injury unless otherwise provided by statute, BUT under Government Code 830, public entities have a duty to avoid maintaining a dangerous condition of public property.
When it comes to these claims and related lawsuits, it is important for insurance companies to know their experts. Nearly every case involves expert testimony. The expert can offer insight on historical and future landslide risk and factors, weather patterns, soil changes caused by the fire and its effect on the landscape. Be prepared to retain experts and before/after photographs to establish cause.