Taming the Flames

Wildfires continue to threaten communities, ecosystems, and economies worldwide. With the increased risk and frequency of catastrophic weather events, the continuous need to reassess and update models has challenged insurance professionals, especially those writing policies in high-risk fire zones. Rising costs have resulted in many insurers increasing premiums, or pulling out of certain markets entirely. As litigation increases due to these events, social inflation, the potential for nuclear verdicts, and changes in society’s attitude about who should be held responsible also contribute to rising insurance costs.

The National Interagency Fire Center publishes the “National Significant Wildland Fire Potential Outlook” report on the first of every month. In its October edition, the report revealed that the national fire preparedness level was raised from three to four (on a  scale of one to five) on Aug. 17, 2023. According to the same report, as of Sept. 26, 2023, a total of 388,787 acres burned in 2023 across 10 states. This is 38% of the 10-year average.

Cal Fire also reported a below average fire year for the state of California. As of Sept. 11, 2023, a total of 5,280 fires burned a total of 255,468 acres. This is below the average of 1,154,554 acres burned during the same period in previous years.

Fire season typically runs from spring through early fall, but due to climate change, it has expanded to a year-long risk in some areas. Further, the risk has spread to areas not previously known as especially susceptible to wildfires. Although AccuWeather’s 2023 U.S. Wildfire Forecast predicted an average season, this year saw one of the worst wildfire disasters in U.S. history, striking the Hawaiian Islands and, particularly, the town of Lahaina.

Climate Change and Risk Assessments

In recent years, the impact of climate change has been on full display as extreme weather events continue to plague people in the U.S. and around the world. Evidence of rising temperatures as well as altered rainfall patterns and dry vegetation indicate this unfortunate trend will continue. In addition to climate change, other factors contribute to the increase in wildfires. According to the National Park Service, wildfires are most often due to one or more of the following factors:

•    Fuel loads—The amount and type of vegetation, dead plant material, and other combustible materials in a certain area.

•    Vegetation management—Controlling and maintaining plant growth in high risk areas.

•    Spontaneous combustion—Wildfires can be caused by lightning strikes or other natural causes.

•    Electric fences—When a wire shorts next to a metal object and is near combustible vegetation.

•    Recreation and ceremonies—Campfires, for example.

•    Power lines—Downed lines may contribute to wildfires.

According to the National Oceanic and Atmospheric Administration, “Climate change including increased heat, extended drought, and a thirsty atmosphere has been a key driver in increasing the risk and extent of wildfires in the western United States during the last two decades. Wildfires require the alignment of a number of factors, including temperature, humidity, and the lack of moisture in fuels such as trees, shrubs, grasses, and forest debris. All these factors have strong direct or indirect ties to climate variability and climate change.”

Living in a world where a serious wildfire could occur at any moment, it is essential that federal, state, and local officials take measures to educate the public on how to protect their lives and property. In addition, many governments now have plans in place to protect their citizens by having coordinated responses ready should a wildfire disaster occur. Employing risk management strategies protects not only homeowners, but also their insurers from potentially astronomical costs. A few methods currently used to reduce risk and mitigate or prevent wildfire disasters are:

•    Early warning systems and technology.

•     Community education and outreach.

•    Implementing evacuation plans.

•    Firebreaks and defensible spaces.

•     Building with fire-resistant materials and “hardening” homes and structures.

•     Controlled burns and prescribed fires.

•    Financial incentives to reduce the cost of insurance premiums for homeowners taking mitigation measures.

Insurance and the Threat of Wildfires

High-risk wildfire areas have seen a sharp rise in the cost of insurance. In some instances, insurance companies are not renewing policies or are refusing to insure property in these areas completely. Insurance companies often purchase reinsurance costs to shield themselves from catastrophic losses, but rising frequency and severity of wildfires have led to higher reinsurance costs in recent years, which insurance companies must then pass on to their policyholders.

In addition, insurance companies find themselves under increased scrutiny by regulators to determine whether they have the financial viability to cover policyholders in the event of a wildfire loss. This can also lead to increased costs for insurers and homeowners. Social inflation aggravates this situation, with plaintiff’s attorneys hungry to seek runaway verdicts for losses. Some states have responded to this crisis by attempting to regulate wildfire insurance and mandate that insurers offer adequate coverage for homeowners.

Legislative and Regulatory Trends

Laws and regulations related to wildfires can vary significantly by region and are constantly evolving as serious wildfires become more prevalent. Many states are increasing funding for wildfire management, with governments pursuing prevention efforts, including investing in equipment, personnel, and technology to detect and combat wildfires more effectively.

Damage to homes can be reduced or prevented through the use of fire-resistant building materials and ensuring that embers cannot enter the home through vents or other openings. This practice is often referred to as “hardening” structures. California has employed this concept since 2008, when it passed one of the first building codes of its kind requiring that new construction in fire prone areas use more resistant materials. This includes ignition resistant roofs, decks, and eaves.

Other states have followed suit. Earlier this year, Colorado signed into law Senate Bill 23-166, which requires homes to be more wildfire resistant. This was motivated by the Marshall Fire in late 2021 that destroyed over 1,000 structures and killed two people. The law mandates a statewide wildfire resistant building code, as well as a 21-member Wildfire Resiliency Code Board tasked with writing standards for new and remodeled homes in high risk areas. This board will include residents, government officials, an architect, fire officials, and insurance professionals. The board met for the first time on Oct. 20, 2023, and the new building code is to be adopted by July 1, 2025. The code will then be modified as necessary every three years.

Likewise, in Oregon, the legislature recently passed Senate Bill 762, which makes sweeping changes to Oregon’s wildfire policies. It shifts control from local entities to state agencies, and the Oregon Department of Forestry will be responsible for drawing a statewide fire risk map. Every parcel will be assigned a wildfire risk class. The classes include extreme, high, moderate, low, and no risk. The map will be used to create defensible-space rules and proposed vegetation removal and maintenance. This may require removal of not only vegetation, but also crops, timber, and landscaping.

Critics of the Oregon bill say the lack of a grandfather clause may force some farmers to destroy crops, or even require some individual homeowners to remove certain landscaping from their yards. Further, the new code is intended to “harden” homes by using fire-resistant construction materials and techniques, and opponents point out that these new regulations will apply to new as well as existing structures. Housing experts estimate that upgrading new and existing structures to comply with the revised code will cost approximately $100,000 per structure.

Colorado, Oregon, and California serve as examples of states taking wildfire threats seriously and implementing aggressive measures to protect property and life. Other states around the nation are also revisiting building codes and considering new measures to combat wildfires as well as the health risks presented by wildfire smoke.

Legal Duties

The legal accountability of public entities, landowners, and power companies can vary dramatically depending on the jurisdiction, as well as the circumstances of each wildfire. In general terms, however, a few over-arching principles apply to the legal responsibility each of these parties may owe in the prevention and aftermath of a wildfire.

Public entities are responsible for battling wildfires as well as taking some preventative measures. For example, public entities may be required to use their resources to detect, contain, and extinguish wildfires. They also have the right to order prescribed burns on public lands, maintain defensible spaces and firebreaks, and enforce regulations such as restrictions on campfires and requiring homeowners to clear brush. In some jurisdictions, a public entity may be liable for damages resulting from a wildfire if sufficient preventative measures, such as clearing dry vegetation on public property, were not reasonably pursued.

Landowners also shoulder some responsibility for the prevention of wildfires. Most residents in areas prone to wildfires are well aware of the danger. In many regions, they have a legal responsibility imposed by local or state regulations to create and maintain a defensible space around their property by clearing vegetation and removing debris from around their homes. As noted above, relevant building code requirements may be passed on to homeowners as well, and there are also zoning requirements and other regulations regarding certain risky activities, such as the use of fireworks. Non-compliant homeowners may be held liable if their negligence caused or contributed to a wildfire. One example was seen in a gender reveal party gone wrong in San Bernardino County, California, where a couple was charged with 30 crimes after their pyrotechnic device sparked a fire, destroying five homes and 15 other structures, and killing a firefighter battling the blaze.

Often, the first place people look to assign blame after a fire is the local power company. Power companies are responsible for their own infrastructure maintenance, such as power lines and transformers, to reduce the risk of equipment-related wildfires. For example, in the Dixie Fire in Northern California, Cal Fire determined that the fire was sparked when power transmission lines ignited and burned nearly 1 million acres and destroyed more than 1,300 homes. Power companies can and have implemented certain preventative measures, such as burying power lines underground and installing Public Safety Power Shutoffs (PSPS), which can be used during periods of high winds and in other situations where the potential for a fire is relatively predictable. If a wildfire is determined to be caused by a power company’s negligence, including its failure to maintain equipment or follow safety protocols, the company can be held liable for resulting damages to individuals and property.

Wildfires have profound human and financial implications for homeowners and communities, including loss of life, livelihoods, and property. Also at stake are skyrocketing insurance premiums, coverage restrictions or nonrenewals, and other long-lasting economic consequences. Risk mitigation in the form of prevention, preparedness, mitigation, and a comprehensive response strategy are imperative in reducing the potential catastrophic fallout from a wildfire. Local and state governments are increasingly aware of the need for new strategies to combat this growing risk to their communities. Homeowners, public entities, power companies, and insurers alike are bound to experience significant policy changes in the coming years. In a best-case scenario, all stakeholders will find common ground in which the interests of all are protected against this indiscriminate risk.