Who will pay for LA fire damages? Complexities abound
Speculation on what caused the Los Angeles-area fires abounds — as does the related question of who’ll pay for the damages
High voltage power lines? Arson? Embers from a minor blaze that smoldered and reignited days later? All of the above?
Speculation on what caused the Los Angeles-area fires abounds — as does the related question of who'll pay for the damages.
As my Reuters colleagues reported, the first lawsuits have already been filed against Southern California Edison. The suits allege the investor-owned power company's equipment is responsible for igniting the Eaton fire in Altadena, which according to Cal Fire, has burned more than 14,000 acres and destroyed at least 4,600 structures.
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The fires broke out amid high winds, low humidity and an unusually dry winter in Southern California.
Southern California Edison "understands lawsuits related to the Eaton fire have been filed," a company spokesperson told me. "SCE will review them. The cause of the fire continues to be under investigation."
Amid the uncertainty, one thing seems clear: The liability landscape for the state's biggest privately owned utilities has shifted since a series of Pacific Gas & Electric-sparked fires in 2017 and 2018 charred huge swaths of Northern California, resulting in more than 100 deaths and destroying thousands of homes and businesses.
Full disclosure: My father in 2017 lost a rental property in Santa Rosa in the Tubbs Fire. Seven years later, he's still awaiting final payment from the $13.5 billion PG&E-funded Fire Victim Trust, which was structured in tandem with PG&E's Chapter 11 bankruptcy. To date, it has paid claimants 70 cents on the dollar, for their damages.
In the wake of the PG&E morass, state lawmakers in 2019 created the $21 billion California Wildfire Fund, offering the potential for speedier and more robust compensation for victims of some utility-caused fires, as well as protection for power companies, should they be hit with massive claims.
But as I'll explain, the fund's coverage is limited, which likely means uneven recompense for those who have suffered from the devastation. It won't help people who lost their homes in Pacific Palisades, for example, where a separate fire in an area not covered by the fund continues to burn.
"It's important to understand what the fund is — and what it isn't," plaintiffs' lawyer Gerald Singleton, who has filed a suit, against SCE in connection with the Eaton fire, told me.
Despite its inclusive-sounding name, the fund is not a pot of money for California wildfire victims in general.
"It essentially acts as a form of reinsurance," said Singleton, who said preliminary estimates of Eaton fire damages range from $5 billion to $7 billion.
Per its website, the fund only covers claims against the three utilities that agreed to contribute a combined $10.5 billion to participate — SCE, PG&E and San Diego Gas & Electric — and it only pays out if the utility is found liable for causing the fire. (As my colleague Tom Hals points out, under the doctrine of inverse condemnation, it's a low standard that, in California, does not require finding a utility — public or private — acted negligently.)
The utilities' customers are contributing the other $10.5 billion, paying an average surcharge of $2.50 per month until 2036.
The legislation also requires the participating utilities to invest in improving the safety of their infrastructure and operations.
In what SCE called "an abundance of caution," the company on 9 January filed an incident report, with the California Public Utility Commission.
In the report, SCE stated it had already received notices from insurance company lawyers requesting that it preserve fire-releated evidence in the event of litigation.
The utility added that its preliminary data indicated no "interruptions or electrical or operational anomalies" in its equipment until more than an hour after the fire was reported to have started, pointing against causation.
But if authorities do in fact deem SCE equipment responsible for the Eaton fire, the company will be on the hook for paying the first $1 billion in claims. After that threshold is met, it can seek reimbursement from the fund for subsequent payouts.
Also, if regulators later find the company was "imprudent" in causing the fire — a new standard created by the legislation — SCE could be responsible for up to $3.9 billion.
None of this applies to the Pacific Palisades fire, however. The wealthy enclave is served by the municipally owned Los Angeles Department of Water and Power, which opted not to participate in the fund (though if at fault, the utility would still be responsible for damages).
An LADWP spokesperson did not respond to a request for comment.
No cause for the Palisades Fire has been released, but investigators are reported to be focused on human-caused factors, not LADWP equipment.
If borne out, that would spare the utility from liability, leaving the tab for damages on the victims and their insurers.
The disparity in outcomes — where one set of fire victims could be made whole by the fund while those on the other side of the county, through no fault of their own, could be left hanging — strikes me as troubling.
To Mark Toney, executive director of ratepayer advocacy group The Utility Reform Network, it suggests the need for "a bigger discussion on changes to the paradigm," including expanding the fund's coverage and criteria.
It's also unclear what happens when the fund inevitably runs out of money.
Because as a Californian, there's one thing I know about living in the state I love: There's always a next time for a catastrophic fire.
