(Article from Insurance Law Alert, April 2025)
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February’s Insurance Law Alert reported on a California appellate court decision dismissing homeowners’ complaint against a property insurer seeking coverage for alleged damage to their home from soot and ash brought by a nearby wildfire. Gharibian v. Wawanesa General Ins. Co., 2025 Cal. App. LEXIS 64 (Cal. Ct. App. Feb. 7, 2025). The Gharibian court held that there was no coverage under the policy because fire debris was easily cleaned and thus did not cause a “distinct, demonstrable, physical alteration to property” as required by California law to establish a direct physical loss.
The Gharibian ruling extended the California Supreme Court’s holding in Another Planet Entertainment, LLC v. Vigilant Insurance Co., 15 Cal.5th 1106 (2024), which declined coverage for alleged physical loss caused by the COVID-19 virus. In reaching its decision, the Gharibian decision seized on the following facts: ash and soot can be “easily removed through normal cleaning”; “soot by itself does not physically damage a structure”; “wildfire debris gradually disappears over time on its own”; and “any ash and soot contamination could be cleaned with wiping, HEPA vacuuming, and pressure washing outside.” The court reasoned that if fire debris-related contamination can be removed using the same types of cleaning methods needed to remove COVID-19 virus particles, then Another Planet applies to bar coverage.
In response to the Gharibian ruling and other decisions, and in the wake of the Los Angeles wildfires of January 2025, the California Insurance Commissioner issued Bulletin 2025-7 on March 7, seeking to “clarify[] regulations for insurance companies,” and stating “that insurance companies cannot summarily deny smoke damage claims without a thorough investigation.”
The Bulletin states that Gharibian does “not support the position that smoke damage is never covered as a matter of law” and is “limited to the facts presented in that case.” The Bulletin also argues that Another Planet supports the proposition that smoke damage may be covered as a “direct physical loss,” based on the California Supreme Court’s statement that “physical alteration need not be visible to the naked eye, nor must it be structural, but it must result in some injury to or impairment of the property as property.”
The Bulletin also declares the Insurance Commissioner’s intent to enforce specific guidelines for claims handling of smoke damage claims, including compliance with California Insurance Code Section 790.03(h) requiring “good faith efforts to effectuate prompt, fair, and equitable settlements of smoke damage claims where liability is reasonable clear” and Section 2695.7(d) of the Fair Claims Settlement Practices Regulations requiring “every insurer to conduct and diligently pursue a thorough, fair, and objective investigation of a claim.”
The Bulletin makes note of potentially recoverable damage requiring “appropriate investigation,” caused by contaminants present in fire debris and ash, including “asbestos, heavy metals, chemicals, and other hazardous substances,” as well as “significant threats to public health through inhalation of dust particles and contamination of drinking water” and exposure of residents “to toxic materials” leading to the spread of “hazardous substances throughout the community.”
We will continue to monitor the application of this Bulletin as well as court decisions relating to the scope of coverage for alleged wildfire-related damages.