USA – CALIFORNIA Trends and Developments Contributed by: Louisa Weix, Monique Ferraro and Hope Williams, TittmannWeix
Following Gharibian , the California Department of Insurance issued Bulletin 2025-7 on 7 March 2025, cautioning insurers against summarily denying smoke- damage claims without a thorough investigation. The Bulletin emphasises that coverage depends on the policy language and the specific facts of each claim. It also notes that Gharibian is limited to its facts and points to the California Supreme Court’s 2024 deci- sion in Another Planet Entertainment , LLC v Vigilant Insurance Co ., 15 Cal. 5th 1106 (2024), which rec- ognised that physical damage need not be visible or structural to constitute a demonstrable alteration. Bottega , Aliff , and Gharibian together frame the fight now underway over the Los Angeles fires. A newer decision extends the fight to a different product line. In late December 2025, the Northern District court denied summary judgment on a claim that smoke taint infiltration into wine barrels constituted direct physi- cal loss in Napa Valley Limoncello LLC v Nationwide Agribusiness Insurance Co ., No 24-cv-03243-HSG (N.D. Cal. Dec. 31, 2025). The outcome has turned on expert testing and industrial hygiene evidence rather than how a party characterises the loss, a pattern Los Angeles claims are likely to follow. For claim handlers, these cases suggest that the out- come will rarely turn on the mere presence of smoke or ash. The more important questions will be wheth- er contamination persisted after ordinary cleaning, whether testing identifies combustion byproducts or other particulates at meaningful levels, and whether the property’s intended use was materially impaired. Insurers evaluating Los Angeles-area claims therefore should expect detailed expert battles over sampling methodology, pre-loss conditions, remediation scope, and the distinction between temporary residue and a physical alteration recognised under Another Planet . Efficient proximate cause After fire comes rain, and after rain on a burn scar comes the mudslide. The “efficient proximate cause” doctrine, codified at California Insurance Code Sec- tion 530, makes an insurer liable for a loss caused by a covered peril even though an excluded peril was a remote cause, but not where the covered peril was itself only remote. The Supreme Court applied the doctrine to first-party property claims in Garvey v
State Farm Fire & Casualty Co ., 48 Cal. 3d 395 (1989) holding that coverage turns on which peril “set the other in motion”, and declining to extend the broader “concurrent causation” rule to first-party claims. Insur- ance Code Section 530.5 separately addresses com- bined peril losses involving landslides. No California court has yet applied efficient proximate cause to a post-Palisades or Eaton Fire mudslide claim. Litigation over the winter’s debris flows appears stalled at the claims-handling stage. The doctrine’s application is likely to track two competing prec- edents. In Howell v State Farm Fire & Casualty Co ., 218 Cal. App. 3d 1446 (1990), wildfire was held the efficient proximate cause of a subsequent landslide, defeating an earth movement exclusion. In Julian v Hartford Underwriters Insurance Co ., 35 Cal. 4th 747 (2005), a rain-triggered mudslide fell within one. Insur- ers are expected to rely on Julian , policyholders on Howell and Garvey . CDI has already issued guidance anticipating the dispute in California Department of Insurance Bulletin 2025-3, Coverage of Flood, Mud- slide, and Earth Movement Claims Relating to Recent Wildfires. Subrogation and the utility litigation A large share of the wildfire litigation, by dollar value, involves insurers as subrogating plaintiffs rather than defendants. Insurers are reportedly pursuing as much as USD10 billion in subrogation claims against South- ern California Edison (SCE) over the Eaton Fire, while Aon has estimated insured Eaton Fire losses alone at up to USD17.5 billion and Moody’s has estimated combined Eaton and Palisades losses at USD25– USD30 billion. A parallel set of claims targets the City of Los Angeles’s public water utility over the Palisades Fire, framed around infrastructure failure at the Santa Ynez Reservoir and dry hydrants. These claims are shaped by inverse condemnation, which can hold a utility strictly liable for property damage caused by its infrastructure without proof of negligence. That doctrine has reached privately owned utilities in California since Barham v Southern California Edison Co ., 74 Cal. App. 4th 744 (1999), reaffirmed after the 2007 San Diego area wildfires in Pacific Bell Telephone Co . v Southern California Edi- son Co ., 208 Cal. App. 4th 1400 (2012) and clarified
309 I NSURANCE L I T IGATI O N 2026
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