Recent California wildfires have heightened concerns about the scope of coverage for smoke damage under homeowners' insurance policies. In response, the California Department of Insurance issued Bulletin 2025-7 to guide insurers in processing smoke damage claims, emphasizing that while policy language remains paramount, each claim must be evaluated on its own merits. The guidance is particularly timely in light of the recent court decision in Gharibian v. Wawanesa Gen. Ins. Co., which addressed the issue of what constitutes direct physical damage as it relates to smoke.
Clarifying Coverage for Smoke Damage Claims
The Department's Bulletin reaffirms that coverage for smoke damage is available under some policies, depending on the specific language and circumstances of the claim. It explicitly cautions against using recent court rulings as a blanket exclusion for smoke damage. For example, the guidance addresses interpretations stemming from the appellate decision in Gharibian v. Wawanesa Gen. Ins. Co., 15 Cal.5th 1106 (2024) where the court ruled that soot and ash alone did not amount to "direct physical loss or damage."
The Bulletin emphasizes that, while legal precedent such as Gharibian highlight that the mere presence of wildfire debris such as soot, ash, or similar particulate matter, does not necessarily trigger coverage, it does not preclude all smoke-related claims. Instead, the evaluation must focus on whether there is a distinct, demonstrable physical alteration to the property. The Department also pointed to the prior decision of Another Planet Entertainment, LLC v. Vigilant Insurance Company (S277893), where the court determined that physical damage need not be visible or structural if it impairs the property.
A Closer Look at the Gharibian Case
The Gharibian decision provides a concrete example of how some courts are interpreting policy terms related to wildfire damage. In that case, homeowners in Granada Hills, California claimed coverage for cleanup costs after wildfire debris, including soot and ash, settled on their property. Although the insurer made partial payments for cleaning, expert testimony and subsequent analysis confirmed that the debris did not cause a demonstrable physical alteration. The court held that without direct physical loss or damage, the policy's coverage provisions were not triggered.
This case reinforces the following key points:
- Coverage hinges on evidence of an injury or impairment to the property, not merely the presence of debris. Physical damage must be demonstrable.
- Insurers are advised to conduct thorough investigations and to rely on qualified experts to assess whether smoke damage meets the threshold for coverage. In other words, expert assessments are critical.
- Even in cases where insurers make discretionary payments for cleaning up fire debris, these actions should not be construed as admission of coverage where the policy language does not support it. These discretionary payments do not establish coverage.
Looking at the Gharibian ruling, the Department's guidance sought to clarify that it should not be used as an across-the-board denial of smoke damages. Instead, it calls for a more nuanced, fact-specific inquiry into each claim.
Insurer's Obligations in Covering Smoke Damage Claims
The Bulletin sets forth clear expectations for insurers managing smoke damage claims.
- Each claim must be evaluated individually based on specific facts and policy language.
- Insurers must conduct fair and objective investigations without shifting the burden to the policyholder.
- When liability appears reasonably clear, insurers are required to settle claims in good faith and without undue delay.
- Insurers should not require policyholders to bear the expense of proving damage. If professional testing is necessary, the insurer must cover these costs.
- Insurers are encouraged to implement reasonable procedures, such as proving low-cost test kits for contaminants to facilitate the early detection of smoke damage.
Health Risks and the Importance of Proper Investigation
Wildfire smoke can contain harmful substances such as asbestos, heavy metals, and various chemicals. The Los Angeles Department of Public Health has warned that improper cleanup and investigation of smoke damage can lead to serious health risks, including contamination of drinking water and prolonged exposure to toxic substances. Recognizing these risks, the Department advises that even if at-home test kits are used as an initial measure, a full professional investigation may be warranted where there is any indication of significant contamination or damage.
Regulatory Oversight and Moving Forward
To maintain public trust and ensure adherence to consumer protection standards. The Department will closely monitor how insurers handle smoke damage claims. Insurers that fail to meet their obligations under California's Insurance Code and the Fair Claims Settlement Practices Regulations may face enforcement actions.
Considering the recent wildfires and the legal precedent set by the Gharibian case, insurers are urged to:
- Evaluate each claim independently. Avoid relying solely on the presence of wildfire debris as evidence against coverage.
- Communicate clearly and transparently with policyholders about the steps and process involved in investigating and settling claims.
- Provide or cover necessary testing rather than requiring policyholders to prove their own damages at their own expense.
With these considerations in mind, insurers can provide fair and prompt service to their insureds, uphold high industry standards, and avoid any negative enforcement actions or penalties from the state. In an era of increasing wildfire risk, fair and transparent handling of smoke damage claims will be critical to maintaining public trust as well as regulatory compliance.