Wildfires destroy millions of acres a year in the United States, spewing smoke across much of the nation. The cost of damage alone over the past several years soars into the hundreds of billions. As wildfires continue to spread, particularly as we enter wildfire season, policyholders’ claims will rise and with that, so too will wildfire insurance coverage issues. Many believe that when a fire damages their property and/or interrupts their business operations, a claim gets submitted and is automatically paid; sadly, this is often not the case.
In a seven-part series delving into issues relating to wildfire insurance coverage, the Hunton insurance group provides a comprehensive understanding of the types of policies that may be available, legal and factual issues that may arise, and steps policyholders can take – both in advance and during the claims process – to maximize recovery. The following issues will be addressed:
- Part One: Types of Wildfire-Related Losses and the Policies That May Provide Coverage
- Part Two: Coverage for Smoke-Related Damages
- Part Three: Standard Form Policy Exclusions
- Part Four: Coverage for Supply Chain Related Losses
- Part Five: Valuation of Loss, Sublimits, and Amount of Potential Recovery
- Part Six: Ensuring Availability of Insurance and State Regulations
- Part Seven: How to Successfully Prepare, Submit and Negotiate the Claim
In this first post in the Blog’s Wildfire Insurance Coverage Series, we provide an overview of types of wildfire-related losses that may be suffered and discuss the breadth of insurance policies that exist and may provide coverage for these losses.
Types of Wildfire-Related Loss
Wildfires take a devastating toll on individuals and businesses alike. Lives are upended. Physical structures are decimated. Contents are destroyed by fire and smoke. Businesses of all sorts are forced to close. Roads are closed, shutting down (or at least slowing down) interstate commerce and adversely affecting supply chains. As firefighters and others battle the fires at considerable personal risk, municipalities and innumerable others incur massive wildfire suppression costs. In addition to policyholders who themselves sustain loss, they may be liable to third parties who assert that policyholder actions caused them to sustain loss as well. These are just a small number of the types of claims that can present.
Which Policies May Provide Coverage for Wildfire-Related Loss?
Homeowners are typically covered by a state approved and standard form fire insurance policy that specifies the minimum coverage that must be provided. As Justice Croskey explained in a leading California treatise on insurance litigation:
States began regulating fire insurance policies in the 1800s. Later, the insurance industry began to expand the perils covered by a fire insurance policy. The first perils that were added related to the actual occurrence of a fire (smoke and water damage). Other perils, such as windstorm and hail, were later added. Eventually, fire and seven other perils became known as “fire and extended coverage.” Competitive pressures caused the insurance industry to continue to expand the fire policy. Fire and 16 specified perils became known as “fire and additional extended coverage.”
While wording may vary by state (and by insurer), the policies typically cover loss to the dwelling, other structures, personal property, and loss of use. The policies also may cover loss due to civil authority where, while the insured property itself may not have been damaged, there has been damage to other property.
Businesses often have similar forms of property coverage. They also frequently purchase business income coverage by which the insurer agrees to pay for lost business income associated with direct physical loss or damage caused by a covered event (here, the wildfire). These policies also may cover what is referred to as contingent business interruption, which provides coverage for losses arising from damage sustained by the businesses supply chain. Builders risk policies may cover property in the course of construction. And an array of coverage modifying endorsements are available on each.
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This is the first post in the Blog’s Wildfire Insurance Coverage Series.
*This post is an excerpt from an article written by Scott DeVries and Yosef Itkin that originally appeared in the Journal on Emerging Issues in Litigation published by Fastcase Full Court Press, Volume 2, Number 3 (Summer 2022), pp. 213-222 (a comprehensive list of all references is provided in the published journal version)
 Croskey, et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group2021) ¶¶ 1:57-8.
See e.g., Genesis Ins. Co. v. McKillop, 2005 WL 2044849 (D. Colo. 2005) (Teacher taking students on field trip fails to extinguish campfire).