Wildfires, Property Insurance, and the Cost of Rebuilding Lives: Navigating the Legal Landscape

In recent years, wildfires have become an increasingly devastating force, scorching landscapes and upending lives across California, Oregon, and Washington. The Los Angeles wildfires, in particular, have left a haunting imprint: 28 lives lost, thousands of homes reduced to rubble, and untold economic and emotional damage. Beyond the immediate flames, questions of recovery—financial, environmental, and emotional—burn just as fiercely. At the center of this recovery lies property insurance, an essential safety net that many are now finding riddled with complexity.

As wildfires grow more frequent and severe, the intersection of natural disasters and insurance law is becoming a critical battleground for homeowners and businesses. Here’s what policyholders—whether they are individuals or businesses—need to know as they navigate this complex and evolving terrain.

The Promises and Pitfalls of Wildfire Coverage

Standard homeowners insurance policies typically promise to cover fire-related damage, including the cost to rebuild or repair your home, replace personal belongings, and even cover temporary living expenses during displacement. At least, that’s the promise. The reality for many wildfire survivors has been far more complicated.

The first hurdle is understanding your policy’s limits and exclusions. For instance, while the cost of rebuilding may be covered, skyrocketing construction prices—fueled by both demand and inflation—can exceed policy limits, leaving homeowners to make up the difference. Similarly, coverage for personal property may fall short of replacing everything lost, especially when sentimental or high-value items are involved.

Businesses face unique challenges, too. Commercial property policies often include business interruption coverage, designed to compensate for lost income during recovery. Yet disputes over the “period of restoration”—a period of time, often specified in the insurance policy, following the onset of a loss—can lead to denied or delayed claims when the insurer believes your business should have resumed operations sooner. And for businesses near the fire’s perimeter that suffered indirect losses, such as lost customers or supply chain disruptions, coverage depends on the scope of the policy and may not be afforded at all.

Rising Premiums, Shrinking Options

The increasing frequency of wildfires has insurers reassessing their risk calculations. For homeowners and businesses in fire-prone areas, this has meant skyrocketing premiums, stricter underwriting, and—in some cases—an outright refusal to renew policies. Insurers argue that the mounting cost of wildfire claims makes their business unsustainable without these measures. For policyholders, it feels like a betrayal: paying premiums for years, only to face abandonment when coverage is needed most.

California, to its credit, has implemented a temporary moratorium on non-renewals for homes in wildfire-prone areas. But these measures are, by design, temporary. When they expire, many homeowners could find themselves scrambling for alternative coverage.

In high-risk areas, state-run Fair Access to Insurance Requirements (FAIR) plans provide a critical backstop. These policies, however, often come with higher premiums and more limited coverage than traditional insurance.  Additionally, they can require pervasive changes to property to reduce fire risk, from plant removal to requiring some changes to structures on the property, such as added flashing and additional hardscaping—all at the cost of the insured before a policy will issue. Thus, FAIR plans are a last resort, not a comprehensive solution.

Commercial policyholders often have even fewer protections and are facing dramatic premium increases, diminished insurer capacity, and the addition of “protective safeguards” clauses requiring investment in infrastructure.

Litigation: A Path to Justice

When insurers deny, delay, or underpay claims, policyholders are not without recourse. Insurance bad faith laws provide a powerful tool for holding carriers accountable. In California, for example, insurers have a legal duty to act in good faith and deal fairly with their policyholders. This includes promptly investigating claims, providing clear explanations for denials, and offering fair compensation.

A successful bad faith lawsuit can result in more than just the original claim amount. Courts can award damages for emotional distress, attorneys’ fees, and even punitive damages designed to deter egregious behavior. These cases, however, are complex and often require expert legal representation.

Environmental and Health Impacts: A Ripple Effect

Wildfires leave scars that extend far beyond the burn zone. In Oregon and Washington, as in California, the environmental toll has been staggering. Entire ecosystems have been decimated, wildlife habitats destroyed, and watersheds compromised. Researchers are now investigating how wildfire runoff affects marine life in the Pacific Ocean, raising questions about long-term ecological consequences.

For residents, the most immediate health concern is air quality. Thick, choking smoke blankets communities, exacerbating respiratory conditions and increasing the risk of heart attacks and strokes. Even after the flames are extinguished, the danger lingers. Burned-out areas can become sources of toxic ash and debris, contaminating water supplies and posing health risks for years to come.

Property insurers may cover some health-related costs under additional living expenses provisions, but these are often limited in scope. For uninsured medical expenses, victims are left to navigate a patchwork of public assistance programs and personal savings.

Preparing for the Future

As wildfires continue to reshape the Western landscape, both physically and financially, policyholders must take proactive steps to protect themselves:

1. Review Your Policy: Understand your deductibles, coverage limits, exclusions, and endorsements. Pay particular attention to replacement cost versus actual cash value provisions, as the latter may not fully cover rebuilding expenses.
2. Document Your Assets: Create a detailed home inventory, including photos and receipts. This can expedite the claims process and maximize your payout.
3. Consider Endorsements: Supplemental coverage options may come at a cost but can be invaluable in a disaster.  Examples of available endorsements that provide greater protection to insureds include forced evacuation coverage, extended replacement cost coverage, and a deductible waiver for large losses.
4. Explore Alternative Coverage: If traditional insurance is unavailable, look into FAIR plans, surplus lines insurance, or newer options like parametric insurance. While not a perfect solution, they can offer some level of protection in high-risk areas.
5. Seek Legal Advice: There are many resources available to homeowners and small businesses in need of basic information. For example, United Policyholders is a non-profit that provides information, guidance and advocacy for insurance buyers and claimants in the U.S. If you encounter resistance from your insurer, consult an attorney who specializes in insurance recovery. Early intervention can make a significant difference in the outcome of your claim.

The Path Forward

The relationship between wildfires and property insurance is not static. As climate change accelerates the frequency and severity of natural disasters, insurers and policymakers must adapt. This may include embracing innovative solutions like parametric insurance, which pays out based on predefined triggers rather than actual losses, or incentivizing wildfire mitigation efforts through premium discounts.

For policyholders, the key to resilience lies in preparation, vigilance, and advocacy. Whether it’s lobbying for stronger state protections, pursuing litigation against insurers acting in bad faith, or simply understanding the fine print of your policy, knowledge is power.