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Posts Tagged ‘Wildfire’

The Effects of the California Wildfires Continue

Posted on: January 7th, 2019

By: Matthew Jones

The California Insurance Commissioner recently issued a press release regarding the extensive insured losses from the numerous California wildfires. Those losses total over $9 billion, and are even expected to rise. The losses span across various lines of insurance coverage, including commercial, residential, personal and commercial vehicles, and agricultural, to name a few. In light of the substantial losses and long process toward recovery, the Commissioner issued a notice to all insurers asking them to expedite claims and issuing checks immediately for four months of out-of-pocket costs. This notice also requested that the insurers help out the policyholders as much as possible in being lenient regarding document production, which will likely be difficult for policyholders given the damages sustained. The Commissioner also issued a “declaration of emergency” to allow insurers to obtain help from out-of-state claims adjusters in order to deal with the high volume of claims. However, these out-of-state adjusters must be educated and versed in California consumer protection laws, which are much more stringent than other states.

So in a time of heartbreak and sorrow, the Commissioner is coming to the rescue to help ease the insurance claim process and help the thousands of victims get back on their feet. However, despite these efforts, extensive litigation is likely to come from these tragic events as homeowners try to make themselves whole again.

If you have any questions or would like more information, please contact Matthew Jones at [email protected].

Despite Causing Wildfires, PG&E Avoids Punitive Damages

Posted on: August 2nd, 2018

By: Carlos Martinez-Garcia

On July 2, 2018, the Third Appellate District of California awarded Pacific Gas and Electric Company (PG&E) its first critical victory in defending itself against fire claims caused by its power lines: Butte Fire Cases, (2018) 24 Cal. App. 5th 1150. In 2015, the “Butte Fire” started after a gray pine came into contact with one of PG&E’s power lines, burning more than 70,868 acres, damaging hundreds of structures, and claiming two lives. The subsequent lawsuits, which were consolidated in a judicial council coordinated proceeding in Sacramento Superior Court, are comprised of 2,050 plaintiffs who sought punitive damages under Civil Code § 3294.

The master complaint alleged that the utility company and two contractors failed to properly maintain the power line and adjacent vegetation, warranting punitive damages. The Third Appellate District disagreed, striking Plaintiffs’ prayer for a punitive damages award.

In California, punitive damages may be recovered under section 3294 “where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice.” (Civ. Code § 3294) Malice is defined by section 3294, subdivision (c)(1) as “conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.”

In seeking summary adjudication, PG&E submitted evidence that it devotes significant resources to vegetation management programs intended to minimize the risk of wildfire, spending more than $190 million per year on vegetation management operations. The operations include routine annual patrols, quality assurance and control programs, and a public safety and reliability program. PG&E also contracted with ACRT, Inc. to conduct inspections and vegetation management, Quantum Spatial, to collect data using LiDAR to identify dead or dying trees, and Trees, Inc. to trim noncompliant trees. No inspections identified the subject tree as a danger.

The Third District was unpersuaded by Plaintiffs’ contention that PG&E’s vegetation management program was “window dressing”, PG&E’s vegetation management methodologies were defective, or that PG&E evinced a cavalier attitude towards public safety evidenced by the infamous San Bruno pipeline explosion and a 1994 “Rough and Ready” fire caused by PG&E.

Plaintiffs failed to demonstrate the existence of a triable issue of material fact that showed PG&E acted despicably, or with willful and conscious disregard for the rights and safety of others. PG&E’s nondelegable duty to safely maintain the power lines does not alter the analysis of punitive damages under § 3294. There was nothing despicable in the utility company’s assumption that contractors were training their employees as required, and any criticisms of PG&E’s methodologies do not amount to clear and convincing proof that PG&E acted with malice. At most, plaintiffs’ evidence showed mere carelessness or ignorance.

If you have any questions, or would like more information, please contact Carlos Martinez-Garcia at [email protected].

Fire On the Mountain: Non-Replacement Valuation First Party Coverage Disputes Arising From Fire Policies

Posted on: November 16th, 2017

By: Richard E. Wirick


This blog, second in a series of three, deals with coverage issues arising from fire losses in the first party context which do not deal with dwelling replacement cost (loss settlement) disputes. The two main areas of remaining first party issues are (1) business interruption and (2) ingress/egress.

A. Loss of Use [Economic Losses]

Fire losses suffered by commercial, as opposed to residential, insureds, usually present loss of use issues. Policies purchased by businesses often contain coverages for loss of use. Unlike loss of use resulting from flood and water damage, loss of use resulting from fires have formed a fairly pro-insured trend throughout the country, and in California.

Business interruption coverage has been defined by California courts as follows. In Pacific Coast Engineering Co. v. St. Paul Fire & Marine Ins. Co., 9 Cal. App. 3d 270 (1970), the court of appeal stated that it was well settled that “[T]he purpose and nature of ‘business operation’ or ‘use and occupancy’ insurance is ‘to indemnify the insured against losses arising from his inability to continue the normal operation and functions of his business, industry, or other commercial establishment . . .’” The court went on to say that business interruption insurance (“BIC”) was to ‘indemnify the insured for any loss sustained by the insured because of his inability to continue to use specified premises  . . .[that is]  for loss caused by the interruption of a going business consequent upon the destruction of the building, plant, or parts thereof.’” One Texas court enumerated the purpose and time span of BIC when confronted with a restaurant policyholder’s windstorm loss. When the restaurant was rebuilt, it nevertheless did not return to the same volume of business for nine months. Lexington Ins. Co. v. Island Recreational Development Corp. 706 S.W. 2d 764 (Tex. App. 1986). The dispute was whether the BIC indemnified the policyholder just up until the time it reopened, or until the time it recovered its lost business volume. The Island Recreational court reasoned that since the policy did not explicitly exclude the period of recovery after the restaurant reopened, coverage continued up until the point that business was restored to its prior volume. Id. at 768.

Though no California cases have addressed this, a federal Third Circuit case examined a BIC loss for a medical imaging company. In American Medical Imaging Corp. v. St. Paul Fire & Marine Ins. Co., 949 F. 2d 690 (3d Cir. 1991), a diagnostic facility had purchased a business policy whose BIC provisions covered the “necessary or potential suspension” of operations, and required the carrier to indemnify the insured until it returned to “normal business operations.” (Emphasis supplied). The insured had reopened its CT/MRI operations at an entirely new location, but as quickly as possible. The Third Circuit held that relocation costs were recovered as part of the insured’s attempt to minimize its losses, and to deny indemnification for same would give the insured no incentive to mitigate.

B. Ingress/Egress Issues

California’s hilly terrain presents ingress and egress obstacles in the event of a fire loss. Are the costs of surmounting them covered under most BIC coverage parts? Most property policies cover losses when ingress to, or egress from, an insured premises is “prevented” because of a covered peril. Are losses from road closures covered? Again, one must look to other jurisdictions for guidance. In National Children’s Exposition Center Corp. v. Anchor Ins. Co., 279 F. 2d 428 (2d Cir. 1960), a court recognized that “prevent” could embrace the milder verb concept of “hinder.” Accordingly, if road closures hindered travel, this coverage part could provide indemnity.

Some extra-jurisdictional decisions have interpreted ingress-egress clauses even if the insured’s property (including private roads and driveways) were not destroyed by fire. In Fountain Powerboat Industries Inc. v. Reliance Ins. Co., 119 F. Supp. 2d 552 (E.D.N.C. 2000), an insured argued that a floodplain prevented ingress-egress to the insured’s boat-building business such that only heavy trucks could pass through. The insurer’s position was that since the insured’s actual facility had not been damaged, there was no coverage. The argument did not fare well with the court, which ruled “[T]he meaning of the ingress-egress clause is exceedingly clear. Loss sustained due to the inability to access the Fountain Facility and resulting from a hurricane is a covered event with no physical damage to the property required.” Id. Analogous arguments could be made for a fire loss.

If you have any questions or would like more information, please contact Richard E. Wirick at [email protected].

Fire On the Mountain: Insurance Coverage Disputes Arising Under California Property Policies

Posted on: November 6th, 2017

By: Richard E. Wirick

No issue in insurance coverage could be more topical than fire losses. The Napa and Sonoma County fires, as well as lesser wildfire losses in the Anaheim area, may well give rise to more coverage disputes than we have seen since the Oakland Hills (Tunnel) fires of the nineties. This is notwithstanding the extensive statutory changes to such coverages, and the attempts to define troublesome terms and concepts such as actual cash value, fair market value, and total replacement costs in the legislature’s changes to the Insurance Code in 2005. In addition to its treatment of first party valuation issues under loss settlement provisions (the most litigated of all fire coverage issues), this series of blogs will also discuss non-valuation-based controversies, such as loss-of-use and business interruption provisions. Additionally, an upcoming blog will discuss third party coverage issues, as well as straight liability issues, that arise, principally from attempts to sue municipalities and other public entities for fire endangerment.


The overwhelming majority of coverage issues litigated in commercial and homeowners fire losses concern valuation of the replaced (or partly replaced) property. The valuation methods are contained in the “Loss Settlement Provisions” of any policy, and break down into “actual cash value” and “replacement cost value.”

*Method One: Actual Cash Valuation (ACV)

Under an open policy (one whose limits are not set in advance), the ACV of a structure that is totally destroyed by fire is its fair market value when the loss commenced. Ins. Code 2052(b)(1). “Fair market value” is the price “a willing buyer would pay a willing seller, and factors such as age, condition, fitness for buyer’s particular purpose, etc. If the structure is only partially destroyed, the ACV formula is the amount it would cost to repair, rebuild or replace the thing lost or injured, less a fair and reasonable deduction for physical depreciation. Ins. Code 2051(b)(2). Given the above depreciation schedule controversies and ensuing litigation, the legislature enacted a new version of Ins. Code 2051(b) requiring the insurer to itemize depreciation only with respect to property normally subject to repair during its useful life, and must be attributable to the age and condition of the property. Ins. Code 2051(b)(2) (2005 version).

*Method Two: “Replacement Cost” Valuation: Alternatively, property insurance policies can be deemed to provide a “replacement cost” valuation basis for insured properties destroyed by fire. (Replacement Cost Coverage or RCC). FIE v. Superior Court (Altman), (2004)116 Cal. App. 4th 446.

RCC was devised to compensate the insured for the differential/shortfall resulting from reconstructing a dwelling under a policy that pays only for ACV, since with RCC depreciation cannot be considered. Altman, supra, illustrated this as follows: “For example, if an insured wanted to replace a damaged roof, the insurer would be liable for the cost of the entire new roof, even if the damaged roof had been ten years old.” Id. at 116 Cal. App. 4th at 464.

The Three RCC Coverages & Tests: Just when you thought these analyses were about to conclude, there are three sub-valuations or standards to be utilized with RCC. The three main forms of RCC are replacement cost, extended replacement cost, and guaranteed replacement cost, all defined by statute. “Replacement Cost Coverage” provides for the cost to repair, rebuild or replace the damaged dwelling up to the policy limit. “Extended Replacement Cost Coverage” indemnifies up to a specified percentage (e.g. 10%) or specific dollar amount above the policy limit. Ins. Code 10102. See also Everett v. State Farm Gen. Ins. Co. (2008) 162 Cal. App. 649, 653. (this case defines “extended replacement cost coverage”); Minich v. Allstate (2011) 193 Cal App. 4th 477, 489-490 [150% of policy limit].“Guaranteed Replacement Cost” Coverage entails the full cost to repair, rebuild or replace the damaged dwelling, without regard to the policy limit. See Ins. Code 10102(e) (f)

Every policy containing fire property loss protection in California must specifically state whether the insured has purchased “replacement cost”, “extended replacement cost” or, alternatively, “guaranteed replacement cost coverage.”

*‘Value Protection’ Clauses [Guaranteed Replacement Cost Plus]: A valuable form of protection, and one salient to the wild swings in California property values and thus the most litigated, is a Value Protection Clause. Such provisions protect increased property values and also enable the insurer to increase premiums accordingly. They explicitly permit yearly premium adjustments to reflect increased costs of construction. This was the subject of the Altman case supra. Such a clause is usually an endorsement that supercedes any code upgrade or replacement cost coverage exclusions. Altman, 116 Cal. App. 4th at 469. Similar protection can be afforded by “inflation coverage provisions.” The particular mechanism for same is an “Inflation Coverage Index” that is in the declarations and increases the policy limits.

Mandatory Statutory Appraisal: Breach of contract, declaratory relief, and bad faith are all available judicial causes of action for an aggrieved insured. However, if the only issue is valuation under loss settlement provisions, and the policy contains an appraisal provision, statutory appraisal under Ins. Code 2071—a sort of ‘arbitration lite’—is the parties’ only form of dispute resolution. Indeed, an appraisal provision in a policy constitutes “an agreement for contractual arbitration.” Code of Civ. Procedure 1280 (a) [defining arbitration agreement to include “agreements providing for valuations, appraisals and similar proceedings”]. See Doan v. State Farm Ins. (2011), 195 Cal. App. 4th 1082, 1092.  Again, however, mandatory statutory appraisal regulations “explicitly document that the Section 2071 appraisal procedure does not limit recourse to other remedies.” Doan, 195 Cal. App. 4th at 1096 and Kirkwood v. Calif. State Auto Ass’n, Inter-Ins. Bureau, (2011) 193 Cal. App. 4th 49, 53-54.

If you have any questions or would like more information, please contact Richard E. Wirick at [email protected].