A California appellate court held that homeowners claiming smoke damages from a wildfire were not entitled to coverage under their homeowners policy. The court held that the insured failed to establish that the smoke caused any physical alteration to the homeowners' property as required by California law. What drove this decision?
The Insurer Contends That There Was No Evidence of a "Direct Physical Loss to Property"
A couple owned a home insured under a Wawanesa General Insurance
Company homeowners policy under a standard Insurance Services Office, Inc.,
Homeowners 3—Special Form. The policy's insuring agreement provided coverage for
"direct physical loss to property."
The October 2019 Saddle Ridge wildfire burned about half a mile from their home. While their property did not suffer any burn damage, the couple claimed property damage due to wildfire debris. Specifically, they contended that smoke, soot, and ash entered their home even though they kept the windows closed. Also, some debris fell into the swimming pool.
The homeowners retained a law firm to represent them and handle all communications with Wawanesa. Without waiving its coverage defenses, Wawanesa attempted to hire an expert to determine what cleaning should be conducted. The expert concluded that it would cost $4,308.90 to clean the property inside and out, including the contents of the house, doors, and windows, as well as the heating, ventilation, and air conditioning (HVAC) system.
The homeowners did not hire an expert to perform the recommended cleaning. Instead, they hired a hygienist to inspect the home. The homeowners' hygienist determined that soot and ash were present at the property. Although noting that ash could damage property if wet and left on wood or vinyl, the hygienist found no evidence that this occurred at the home. Also, the hygienist confirmed that there was no burn or heat damage at the property. Thus, the hygienist determined that the property could be thoroughly cleaned by wiping the surfaces, using high efficiency particulate air (HEPA) vacuuming, and power washing the outside.
Wawanesa's retained industrial hygienist reached similar conclusions. It determined the home interior could be cleaned through normal processes, such as wiping with wet disposable cloths and using a HEPA vacuum to clean the attic. However, it noted that the HVAC system did not warrant cleaning.
Rather than pay a contractor, the homeowners cleaned their own home. By December 2019, they were unaware of any visible wildfire debris that remained outside or inside their home. Moreover, even the smell of smoke dissipated after 3 months.
The homeowners demanded further cleaning services, including general cleaning, interior painting, exterior wood and stucco painting, the replacement of attic insulation, swimming pool work, and HVAC system cleaning. As a concession, the insurer paid over $20,000 to the homeowners.
Unsatisfied, the homeowners sued Wawanesa in a Los Angeles
Superior Court, claiming it breached its contract and acted in bad faith.
Eventually, the Los Angeles Superior Court ruled in Wawanesa's favor, holding there
was "no evidence of 'physical loss' as that term is used and intended in the policy;
an appeal was filed.
California Appellate Court Rules No Coverage Owed
The California Court of Appeal, Second District, ruled that the smoke damage did not cause "direct physical loss or damage" to the homeowners' property. In reaching this result, the court relied on a recent California Supreme Court opinion analyzing the meaning of the phrase "direct physical loss or damage" related to losses stemming from whether the actual or potential presence of the COVID-19 virus was on an insured's premises. (Another Planet Ent't, LLC v. Vigilant Ins. Co.,
15 Cal. 5th 1106 (May 23, 2024).) The California Supreme Court in Another Planet concluded that:
Under California law, direct physical loss or damage to property requires a distinct, demonstrable, physical alteration to property. The physical alteration need not be visible to the naked eye, nor must it be structural, but it must result in some injury to or impairment of the property as property.
Next, the court determined that the analysis in the Another Planet case was not limited to COVID-19 and should be broadly applied to smoke-related losses. Applying this standard to the wildfire smoke loss claimed by the insureds, the court considered the following evidence.
The insureds' own experts confirmed that there was no ash or soot damage and that the property could be fully cleaned by wiping some surfaces.
The insureds cleaned their property themselves.
The smell of smoke dissipated after 3 months.
Based on these facts, the court sided with Wawanesa, holding:
Here there is no evidence of any "direct physical loss to [plaintiffs'] property." The wildfire debris did not "alter the property itself in a lasting and persistent manner." Rather, all evidence indicates that the debris was "easily cleaned or removed from the property."
Finally, the fact that Wawanesa made payments to the homeowners despite no coverage was irrelevant. Insurance companies may make payments for various reasons, including goodwill, but that does not create an obligation to provide damages for uncovered claims.
Takeaway: Smoke Damages Are Difficult To Prove in Some Instances
This case demonstrates the challenges that insureds face when proving smoke damage under a homeowners insurance policy. The court did not shut the door on the smoke-related damages being covered. Instead, it required that the insured establish that the smoke caused a physical alteration. Significantly, the court determined that the presence of debris alone was insufficient to trigger the policy.
Want to know more about emerging exposures and significant coverage rulings? IRMI's Insurance Law Essentials product summarizes the most important cases in the industry and delivers them in an e-newsletter directly to your inbox. Many of the summaries include the actual policy forms that the court analyzed, which is a feature not available anywhere else. Now, you can see the actual policy containing the form number and the complete text of the actual endorsement or policy that brought the case to the court. We alert you semimonthly* to breaking coverage decisions organized by coverage line and jurisdiction, so you can quickly find the cases that are important to you.
*Except for November and December, when the newsletter is sent monthly.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
A California appellate court held that homeowners claiming smoke damages from a wildfire were not entitled to coverage under their homeowners policy. The court held that the insured failed to establish that the smoke caused any physical alteration to the homeowners' property as required by California law. What drove this decision?
The Insurer Contends That There Was No Evidence of a "Direct Physical Loss to Property"
A couple owned a home insured under a Wawanesa General Insurance Company homeowners policy under a standard Insurance Services Office, Inc., Homeowners 3—Special Form. The policy's insuring agreement provided coverage for "direct physical loss to property."
The October 2019 Saddle Ridge wildfire burned about half a mile from their home. While their property did not suffer any burn damage, the couple claimed property damage due to wildfire debris. Specifically, they contended that smoke, soot, and ash entered their home even though they kept the windows closed. Also, some debris fell into the swimming pool.
The homeowners retained a law firm to represent them and handle all communications with Wawanesa. Without waiving its coverage defenses, Wawanesa attempted to hire an expert to determine what cleaning should be conducted. The expert concluded that it would cost $4,308.90 to clean the property inside and out, including the contents of the house, doors, and windows, as well as the heating, ventilation, and air conditioning (HVAC) system.
The homeowners did not hire an expert to perform the recommended cleaning. Instead, they hired a hygienist to inspect the home. The homeowners' hygienist determined that soot and ash were present at the property. Although noting that ash could damage property if wet and left on wood or vinyl, the hygienist found no evidence that this occurred at the home. Also, the hygienist confirmed that there was no burn or heat damage at the property. Thus, the hygienist determined that the property could be thoroughly cleaned by wiping the surfaces, using high efficiency particulate air (HEPA) vacuuming, and power washing the outside.
Wawanesa's retained industrial hygienist reached similar conclusions. It determined the home interior could be cleaned through normal processes, such as wiping with wet disposable cloths and using a HEPA vacuum to clean the attic. However, it noted that the HVAC system did not warrant cleaning.
Rather than pay a contractor, the homeowners cleaned their own home. By December 2019, they were unaware of any visible wildfire debris that remained outside or inside their home. Moreover, even the smell of smoke dissipated after 3 months.
The homeowners demanded further cleaning services, including general cleaning, interior painting, exterior wood and stucco painting, the replacement of attic insulation, swimming pool work, and HVAC system cleaning. As a concession, the insurer paid over $20,000 to the homeowners.
Unsatisfied, the homeowners sued Wawanesa in a Los Angeles Superior Court, claiming it breached its contract and acted in bad faith. Eventually, the Los Angeles Superior Court ruled in Wawanesa's favor, holding there was "no evidence of 'physical loss' as that term is used and intended in the policy; an appeal was filed.
California Appellate Court Rules No Coverage Owed
The California Court of Appeal, Second District, ruled that the smoke damage did not cause "direct physical loss or damage" to the homeowners' property. In reaching this result, the court relied on a recent California Supreme Court opinion analyzing the meaning of the phrase "direct physical loss or damage" related to losses stemming from whether the actual or potential presence of the COVID-19 virus was on an insured's premises. (Another Planet Ent't, LLC v. Vigilant Ins. Co., 15 Cal. 5th 1106 (May 23, 2024).) The California Supreme Court in Another Planet concluded that:
Next, the court determined that the analysis in the Another Planet case was not limited to COVID-19 and should be broadly applied to smoke-related losses. Applying this standard to the wildfire smoke loss claimed by the insureds, the court considered the following evidence.
Based on these facts, the court sided with Wawanesa, holding:
Finally, the fact that Wawanesa made payments to the homeowners despite no coverage was irrelevant. Insurance companies may make payments for various reasons, including goodwill, but that does not create an obligation to provide damages for uncovered claims.
Takeaway: Smoke Damages Are Difficult To Prove in Some Instances
This case demonstrates the challenges that insureds face when proving smoke damage under a homeowners insurance policy. The court did not shut the door on the smoke-related damages being covered. Instead, it required that the insured establish that the smoke caused a physical alteration. Significantly, the court determined that the presence of debris alone was insufficient to trigger the policy.
Want to know more about emerging exposures and significant coverage rulings? IRMI's Insurance Law Essentials product summarizes the most important cases in the industry and delivers them in an e-newsletter directly to your inbox. Many of the summaries include the actual policy forms that the court analyzed, which is a feature not available anywhere else. Now, you can see the actual policy containing the form number and the complete text of the actual endorsement or policy that brought the case to the court. We alert you semimonthly* to breaking coverage decisions organized by coverage line and jurisdiction, so you can quickly find the cases that are important to you.
If you are not a subscriber, subscribe today!
*Except for November and December, when the newsletter is sent monthly.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.