As of January 27, 2025, wildfires in the Los Angeles area have destroyed almost 57,000 acres, according to the California Department of Forestry and Fire Protection. Properties destroyed include houses, factories, retail stores, senior living communities and others. Additionally, smoke and soot impacted thousands of structures that didn’t burn. Here we outline property insurance coverage issues that may arise from the wildfires.
Note: Property insurance policy wordings vary significantly. There are company forms, Insurance Services Organization (ISO) forms, manuscript and standardized state-required forms. Given the numerous variations, it is inappropriate to provide conclusory statements about what would and would not be covered by a property insurance policy without reviewing the specific wording and facts that give rise to a specific claim. The comments below should be viewed as guidelines for investigation into areas of coverage and not definitive statements regarding whether a specific claim is covered.
Direct physical damage from fire is the most basic form of coverage, and damage to an insured structure by fire should be covered. Such damage most likely will also trigger time-element coverages, such as business interruption or extra expense. Physical damage would include the physical alteration of the insured property and would most likely include smoke damage to a structure or to mechanical systems that service the structure.
Certain circumstances that result in prohibited or limited access or use of the insured property and that result in a financial impact to the insured’s operations may trigger coverage. Potential coverages include:
Some or all of those coverages may be subject to a waiting period, i.e., a period of time (12 hours, for example) during which ingress or egress is prevented before coverage is afforded. Generally, once the waiting period is over, the financial loss is calculated from the time the interruption started and the deductible applied to the total financial loss.
In addition, if an insured sustains financial loss from one of the above situations, it would be prudent to maintain records of the following to document:
Fire damage may occur to the premises of an insured’s customer or supplier that prevents or impairs the supplier from supplying or the customer from accepting its goods and services. Financial loss suffered as a result may be covered.
Multiple fires may physically impact an insured location, whether from direct damage or smoke damage. Whether the insurer will recognize the damage as one or two occurrences (and therefore apply one or multiple deductibles) will be dependent upon the definition of “occurrence” found in the policy. In addition, some occurrence definitions have time constraints, similar to hour clauses found in named-storm occurrence definitions.
Expenses incurred to fight a fire may be covered if there is firefighting coverage. This could include the hiring of a private fire-fighting force.
In addition, expenses incurred to protect property from damage, such as spraying with flame retardant, hosing down the insured property or other preemptive measures could be covered under protection-of-property or sue and labor coverages. Sublimits of liability for these types of coverage vary widely.
Expenses incurred to continue a business as normal as possible, such as leasing a new location to replace a fire-damaged location to continue operations may be covered. Also, the cost of moving residents (a senior living facility) or tenants (a leased building) and paying for temporary housing may be covered.
All these costs and others mentioned above should be recorded in a separate account for the fire loss. These expenses should be broken down into different categories as needed.
Many policies reimburse for the cost of retaining a forensic accountant who can assist in the documentation of property damage and preparation of a financial loss. Be aware that there are many variations in policy wording and some clauses require the insurer’s approval before coverage is afforded.
If there is any question as to whether a claim is covered, it makes sense to submit one. Contact your insurance broker for additional coverage information.
The 2025 Los Angeles wildfires highlight the importance of property insurance in the recovery process. Many factors can influence an organization or individual’s ability to collect for damages. But promptly notifying insurers and keeping detailed records is critical to help maximize recovery of losses in a timely fashion.
WTW hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).