What liability do utilities have for the wildfires?
When a utility’s equipment causes a wildfire, the utility is financially responsible for the damages suffered by governments, businesses, and homeowners. Investor Owned Utilities (IOUs) are seeking ways to protect shareholders from wildfire costs by shifting them to taxpayers, the uninsured, and insurance customers.
Wildfires can cause shocking death and destruction. State, county, and local governments sustain massive financial loss, including damage to vehicles, buildings, pipes, and other infrastructure. Businesses can lose buildings, equipment, crops, and animals. Homeowners can lose their biggest asset of all. Many, but not all wildfire victims have insurance. The California Department of Insurance (“CDI”) calculates that the October and December 2017 fires resulted in over $11 billion in insured losses.
Those without insurance recoveries will seek recovery from the responsible party. Napa, Sonoma, and Mendocino counties, in addition to hundreds of affected homeowners, have already filed suits against PG&E for the North Bay fires.
Those who do have insurance will work directly with their insurer. After the claim is fully paid, the insurer is permitted to “step into the shoes” of that homeowner and file their lawsuit against the responsible party in a process called “subrogation.” Subrogation is a basic tenet of insurance law: a responsible third party must pay for the damage they cause. The CDI requires insurers to use these subrogation recoveries to offset claims costs and reduce insurance rates.
Insurers routinely use subrogation for all types of insurance. For instance, when a fully-insured customer crashes a car, the auto insurer pays to repair the car and then seeks reimbursement, if any, from the at-fault driver who caused the customer’s crash. The same applies to homeowners insurance, after a third party causes a fire. It is important to note that subrogation recoveries are not profit for insurers; rather, they are factored into rates. Therefore, limiting subrogation will limit the ability of consumers to recover their deductibles.
Subrogation provides a great customer convenience. Instead of being forced to battle an at-fault party, the customer immediately proceeds with an insurance claim, and the insurer will spend the time and money needed to recover from the at-fault party. In the case of utility-caused wildfire, this recovery typically takes years – which an ordinary homeowner could not withstand.
If IOUs escape liability for fires that they cause, taxpayers could face higher taxes, and insurance consumers could be subjected to this insurance rate cost-driver. Whether it is a direct lawsuit by governments or a subrogation lawsuit by an insurer, lawmakers should protect the current system that keeps the responsibility for wildfires where it belongs.