November 1, 2017

Coverage issues ferment in wine country fires

Property damage, business interruption may yield subrogation

Northern California’s recent series of wildfires, which have claimed at least 43 lives and destroyed no fewer than 8,400 structures in the state’s world-famous winegrowing region, are expected to generate thousands of personal and commercial lines claims for insurers. Assessing all the damage from the wildfires, which began on October 8, will take time. Catastrophe modeling firms vary on the total insured loss estimates, but Risk Management Solutions in Newark, California, estimates that insured property damage, contents and business interruption losses could exceed USD 6 billion.

What caused the recent wildfires is not clear, but causation may lead to subrogation actions after insurers work through the direct losses. News reports suggest that utility Pacific Gas & Electric’s equipment and activities may have had some involvement in the cause and or spread of the fires.  PG&E is already facing lawsuits alleging negligence and violation of safety codes. PG&E’s parent company, in a filing with the Securities and Exchange Commission, noted that California authorities are investigating the cause of the fires, including a possible connection to power lines and other facilities owned by PG&E. The utility disclosed that it has USD 800 million in liability insurance.

As causation of the wildfires is explored, several coverage issues may arise from the fire claims. Chief among these are:

  • Number of occurrences. Wildfires are dynamic natural disasters; embers from one fire may ignite additional fires, and separate fires may merge to become one. Many property policies utilize 72-hour or 96-hour clauses to define covered occurrences of loss. The recent series of wildfires, however, may test those wordings and the application of policy limits and deductibles.

  • Business interruption. The wildfires spread so quickly that many residents and businesses had little time to escape as authorities issued evacuation orders. Some people are still unable to access their properties. Ingress and egress restricted by government officials may trigger claims under the civil authority and ingress/egress time-element extensions to business interruption coverages.

Insurers are likely to see a diverse set of claims from the wildfires. The majority of property damage appears to be to homes, which range from modest dwellings to estates owned by high net worth families.

Reports suggest that the fires spared many but not all of California’s wineries in Napa and Sonoma counties, which produce some of the world’s most popular wines. Property coverages available to winery operations include: wine products, barrels and equipment; wine stored offsite and for others; business income and extra expense; and orchard and vineyard coverage of harvested grapes as well as damage to vines.

The nature of the recent fires and their location will draw attention to the region’s recovery, in which insurance will play a leading role. The importance of insurance coverage to rebuilding lives and communities after disasters comes into sharp focus during events such as these kinds of catastrophic events.