A recent California appeals court decision has reaffirmed that wildfire debris does not automatically constitute “direct physical loss or damage” under homeowners insurance policies. The ruling upholds a lower court’s dismissal of a breach of contract lawsuit filed by policyholders against Wawanesa General Insurance Co., potentially influencing future insurance claims related to wildfire damage.
Case Background
The dispute arose from an October 2019 wildfire that burned approximately half a mile from the plaintiffs’ home. While the fire did not directly burn the property, it caused debris to accumulate inside and outside the home, including in the swimming pool. The plaintiffs initially reported that smoke odors inside the home dissipated within three months.
Despite the lack of burn damage, the homeowners filed a claim with Wawanesa. The insurer hired PuroClean to inspect the property and estimate cleaning costs, resulting in an initial estimate of $4,308.90. However, instead of using PuroClean’s services, the homeowners engaged a hygienist, who concluded the property could be cleaned using standard methods, such as wiping surfaces, HEPA vacuuming, and power washing the exterior.
Insurance Claim Dispute
Wawanesa subsequently hired an industrial hygienist who confirmed that routine cleaning methods would be sufficient. The plaintiffs chose to clean their home themselves, reporting in December 2019 that no visible wildfire debris remained. However, in March 2020, they obtained a new estimate, which placed cleaning costs at over $35,000.
Following the updated estimate, Wawanesa engaged a third-party vendor to reassess the claim. This resulted in a revised estimate of $20,718.09. In September 2020, Wawanesa issued an additional payment of $16,409.19, accounting for prior payments and the deductible. Additionally, in November 2020, the insurer paid $2,400 for pool cleaning, despite previous inspections not recommending it.
Despite receiving over $20,000 in total payments, the policyholders filed a breach of contract lawsuit against Wawanesa in November 2020. The insurer moved to dismiss the case, arguing that the claim did not meet the policy’s requirement for direct physical loss or damage.
Court Ruling and Legal Implications
The trial court ruled in favor of Wawanesa, and the policyholders subsequently appealed the decision. The appeals court upheld the lower court’s ruling, stating that Wawanesa’s settlement payments did not establish coverage where it did not otherwise exist.
The court cited California law, which requires “direct physical loss or damage” to involve a “distinct, demonstrable, physical alteration” to the property. The ruling clarified that while physical alteration does not need to be structural or visible, it must result in some injury or impairment to the property. In this case, the debris was removed through standard cleaning methods without causing lasting damage to the home.
Industry Impact
This decision may have broader implications for homeowners insurance claims related to wildfires in California. With insurers such as State Farm paying nearly $500 million in claims following recent wildfires, this ruling sets a legal precedent that could influence how future claims are assessed. Policyholders may face challenges in securing compensation for wildfire-related debris unless they can demonstrate a lasting physical alteration to their property.
The ruling reinforces the importance of clear policy definitions and thorough damage assessments in insurance disputes, shaping how insurers and policyholders navigate claims related to environmental hazards such as wildfires.