Wildfire Smoke Claims: A Hidden Postwildfire Catastrophe

Wildfire Characteristics

An early takeaway from wildfire smoke was the realization that smoke claims differ depending on many variables. As a rule of thumb, the resulting damage will depend on where the fire burns, the weather conditions, the duration, and the heat generated. Let's explore each wildfire's basic characteristics to see how the resulting smoke claims might be impacted.

• Waldo Canyon Fire. This human-caused fire started on national forest land. On June 26, 2012, moderate winds driving this fire caused extensive vegetative burning that resulted in a pyrocumulus cloud to form, which collapsed, causing hurricane-force winds that drove the fire downhill into the suburban Mountain Shadows neighborhood of Colorado Springs. The embers created by this fast-moving fire caught several structures on fire beginning at 5 p.m. (MDT) and burned 347 homes to the ground and all their contents in 4 hours. Two neighborhoods within Mountain Shadows experienced conflagration conditions. The heat generated by this fire melted underground landscape sprinkler systems buried a foot deep and caused the concrete foundations to fail, with temperatures estimated around 2,500 degrees Fahrenheit. The resulting smoke infused into neighborhood homes that did not burn and migrated to surrounding neighborhoods due to the wind.
• Black Forest Fire. This human-caused fire began in the trees in a more rural area with houses on larger lots with limited water assets. This fire burned for over a week due to shifting winds that were low enough to allow the smoke to rise. Certainly, the almost 500 structures experienced high temperatures when they burned, but there were no conflagrations due to the separation of the structures.
• Marshall Fire. This human-caused fire started in an open space in Boulder County on a late December day with winds clocked around 100 mph. These winds drove the fire through dried, dead vegetation for several miles until homes in Superior, Louisville, and Boulder County caught fire. Over the next 12 hours, almost 1,100 structures were total losses. This fire is considered a suburban fire because the neighborhoods were more densely populated. Due to the proximity of the lost homes, the heat of this fire was very high as evidenced by the destroyed foundations, and the hurricane-force winds did not diminish as quickly as with the Waldo Canyon Fire.

From these brief descriptions, there are three takeaways about smoke claims based on the fire characteristics.

• Wind-driven smoke is more damaging because it can infuse into the many nooks and crannies of a home and can cause smoke damage.
• Wildfires in densely populated areas cause more damage in the surrounding homes left standing after a wildfire.
• Modern homes have construction materials and contents that—when they burn—are more toxic and, if wind-driven, cause greater damage.

Smoke as a Peril

As noted earlier, smoke is the gas or solid byproduct of fire. Most of the time, smoke is visible to the naked eye and can be smelled. Smoke also contains various chemical properties that may be more damaging to humans and property. From an insurance perspective, smoke from sudden and accidental "hostile fires" is covered with three common coverage limitations: smoke from "friendly fires," agricultural smudging, and industrial operations. There is little question that wildfire smoke is a covered peril.

Wildfire creates two basic types of smoke: organic and inorganic. Most of us are familiar with smoke from fireplaces and grills, which is organic smoke. When the trees and vegetation burn in a wildfire, they create primarily organic smoke, but even this smoke may have hazardous chemical residues. Organic smoke is generally easier to clean and less toxic to human systems, although there is continuing scientific research on its toxicity. Inorganic smoke results from the burning of plastics, synthetic materials, automobiles, and chemicals found in most homes. For example, imagine wondering what chemicals were infused into your home when the house next door fully burned a Tesla and many other plastic and chemicals. Inorganic smoke residues are much more difficult to clean, which can create a contentious claims experience following a wildfire.

Wildfire smoke has three other characteristics that add to its ability to cause extensive damage. First, if the smoke is driven by wind for a short or extended period, the smoke damage is much more expensive to remediate. Second, most homes have numerous openings in the structure in which smoke can infuse and compound the smoke damage to the structure. Finally, because of its invasiveness, smoke causes damage to all of the personal property in the house, whose cleaning can be very problematic.

Psychological Dimensions of Wildfire Smoke Claims

Smoke claims are more challenging to adjust because of two separate psychological factors that are unique to these claims. These factors involve both individuals and groups of similar survivors who drive these concerns in the press and social media.

In the immediate aftermath of a wildfire, partial-loss homeowners have a moment of great relief. They did not lose everything but rather had a dwelling full of smoke-infused, manageable damage. As time progresses following the loss, two factors start playing out. First, in many cases, the smoke cleanup is not as easy a process as first thought. Even with the best of remediation, the house and contents still seem unclean, and worries start regarding the long-term impacts of smoke particles that may not have been fully mitigated. Another concern at this point is whether the sale price of their home has diminished because of this damage. Second, a huge impact is seeing their total-loss neighbors' rebuilding back new and better while they are stuck with a dirty home.

Another psychological hurdle to overcome is the long-term impact of residual smoke residues and odors on insureds who have respiratory or immune health issues as well as certain vulnerable populations (i.e., pregnant women, infants, cancer survivors, and seniors). Even though a good faith effort was made to remediate their homes, they may still have headaches, asthma, chronic respiratory, or other medical conditions. In many cases, they fear the unknown of the other chemicals in their residence that were not fully detected or remediated.

Realities of Wildfire Smoke Claims

Wildfire smoke claims present a big challenge to insurance claim professionals starting with interpreting insurance policy language that specifies that the damage will be repaired or replaced. The next hurdle is determining the scope of damage since much of the damage will be hidden from an adjuster's view. Usually, there is some visual evidence of smoke damage. Still, the extent of damage and majority of smoke damage is hidden behind walls, in porous surfaces, and in chemical residues that need much further analysis to determine the extent of damage.

Certainly, the proximity to the fire, the duration of its smoke, and the direction of any windblown smoke can play a role in determining the damage. The next step is to engage a restoration contractor or an industrial hygienist to prepare a scope of work and/or assessment of any underlying smoke particulates that need remediation. Based on this evidence, an initial attempt at smoke remediation can start recognizing that disagreements about the final scope of work may occur later in the claim after this initial work because there are limited recognized standards for more invasive smoke remediation work.

There are few available statistics on the frequency and severity of smoke claims. While such data would help quantify the extent of any postwildfire claim outcomes, this information would only be partially helpful because the specific dynamics of each wildfire will dictate the extent and severity of the resulting wildfire claims. From a layman's perspective, a claim professional should consider the following two major smoke severity variables.

• What were the wind speeds and directions driving the wildfire?
• How close did the wildfire come to the damaged home?

As in many insurance issues, there are likely to be other dependencies, but, given this rough analytical model, smoke claim severity can be estimated to cluster in three main categories.

• Minimal damage to homes 5 miles from the fire
• Moderate damage in the next concentric circle from the bull's-eye between 1 and 5 miles from where the fire burned
• Severe damage in a bull's-eye area within 1 mile downwind from the fire

These "rough" categories—plus the initial claim scopes of work—should direct the initial claim process. Any cleanup is very labor-intensive. Smoke-related repairs also involve more labor and will be more expensive to repair. Early remediation strategies are to clean and deodorize the indoor air and clean outside surfaces of smoke residue, char, soot, and particulates. An early target for this effort is to clean the home's HVAC system.

Smoke Remediation Continuum

Who decides what restoration is required? Although the adjuster is in the driver's seat, they usually rely on the restoration contractor's bid, an evaluation by an industrial hygienist, or a combination of both. At the initial phase of a claim, the insured and adjuster largely rely on the above parties due to the technical nature of resolving these claims.

• Minimal restoration. Fortunately, many smoke claims will be resolved with minimal work that can be done by the insured or a restoration contractor. This work includes cleaning all dwelling surfaces, removing smoke particulates from the air, cleaning upholstered furniture, and washing or dry cleaning all bedding, curtains, clothes, and similar items. It also requires continual ventilation, which is sometimes difficult during winter months as was learned in the Marshall Fire aftermath. This process is most helpful on "organic" smoke claims and was used extensively in all three fires.
• Moderate restoration. This level of remediation usually requires the same processes as above but includes much more extensive work. With more extensive smoke damage, these homes usually will require attic insulation replacement; painting the cleaned walls to encapsulate any interior wall smoke particles; and replacement of the HVAC system, many electronics devices, and all soft furniture and mattresses.
• Severe restoration. This process includes all the work outlined in the two previous processes plus the removal of all drywall and insulation and sealing of the wall studs to prevent the release of toxic gases that may be entrapped in the dwelling structure. In some instances, the exterior windows need replacement too. Certainly, the additional costs of this level of remediation create more potential for claim adjustment disagreements.
• Total loss declaration. Technically, at this level, an insurer can declare the home a total loss. In the three wildfires mentioned above, no home was declared a total loss even though the eventual costs to finalize the claim may have approached the cost to replace the dwelling.

The above processes seem quite straightforward, but in the real world, many things can and do complicate the final adjustment of these claims.

Some Remediation Challenges

Insurance professionals know that, even under the best circumstances, other elements can affect a claim's outcome. The following is a sampling of some extra hurdles.

• Poor workmanship. After completing the first remediation attempt, the customer returns to a house that is still dirty, smells like smoke, and causes headaches and respiratory issues. Who is responsible? The answer is that it depends. Remarkably, most catastrophe smoke restoration teams are temporary workers given a little training and hoping their work completes the job. In addition, their supervision is not seasoned either. In these cases, many contractors will try to correct these shortcomings. In some cases, they succeed, but in many more, they do not.
• Poor work outcomes. Many marginal or poor outcomes result from not performing the mitigation necessary for a successful outcome. Because of the limited standards noted earlier, there is often a tendency to try the easiest and least expensive measures rather than correctly diagnosing the appropriate work required to thoroughly clean. We will discuss the impacts of this outcome in the next section.
• Continuous contamination. An added challenge is correctly cleaning the property only to have it become contaminated again. When you are dealing with large wildfires whose debris still exists near the remediated house and the winds pick up the soot and char from the debris, you may need to consider follow-up cleaning until the surrounding landscape is cleaned. Interestingly, cleanup of the surrounding landscape is often not covered under many homeowners insurance policies, so contaminated soil can remain a source of potential health impacts.
• Windows. In some cases, window seals are breached usually due to high heat, permitting outside contaminants to continue to infuse into the residence. The breach may have occurred from some other peril or just deterioration. Despite many suggestions to repair the breached windows and now have trapped smoke particles between the panes, there are very few practical affordable solutions to this problem. If the insurer agrees to replace them, it may have to replace all windows to match the exterior view.
• Personal property nightmares. Many claim problems result from this cleanup effort too. The following are a few.
  • Industrial laundry that cleans fabrics designed for hospitals. Their water is too hot and shrinks clothing.
  • Misplacement of personal property during the cleaning process.
  • Theft of personal property, especially guns, jewelry, and other collectibles.
  • The cost-benefit of cleaning valuable paper items like photos, books, and other ephemera that exceed their actual cash value.

These challenges create barriers to a smooth claim resolution and do not create a positive long-term customer relationship.

Dispute Resolution of Smoke Claims

My biggest takeaway was how poorly prepared insurers are to adjust smoke claims and how poorly traditional policy dispute resolutions worked in the smoke subset of wildfire claims. This should not surprise the reader since the sheer magnitude and complexity of these claims in the 21st century have now added a different dimension to wildfire claims handling. As I stepped up to my Marshall Fire assignment, I learned a valuable lesson that smoke handling is not for an inexperienced adjuster and requires special expertise to adjust these invisible and large claims.

From my earlier adjusting and agent experiences, I expected most disputes could be resolved amicably with good investigation, communication, and technical knowledge with a customer through the creative adjuster intervention facilitated by the agent. Based on approximately 25 smoke claims with disputes, I do not recall these behaviors in any of the claims. However, I saw extensive use of dueling industrial hygienist experts as the first line of resolution. In my view, these duels added cost, polarized the parties further, and provided limited common ground to resolve the claim.

Another takeaway: The most contentious disputes resulted from the Waldo Canyon and Marshall Fire. This is not surprising because of the incredible impact that the wind had on damaging the surrounding neighborhood homes. In my Marshall Fire consultations, I consulted on approximately 25 contested smoke claims, which set up the dueling expert reports: one from the insurer's expert limiting the remediation and the amount of smoke particles and the other from the insured's expert who found much more extensive damage.

Curiously, both experts' opinions were based on finding where their profession had no agreed remediation standards. These insured opinions were expensive and often extensive. Their cost was approximately $10,000 for each report for which the insured had to absorb the expense. The existence of these reports moved very few of the claims forward because each side mistrusted the outcomes of the other's report. Using the appraisal process outlined in the various policies, it would have been helpful to trigger that mechanism by agreeing on a third appraiser. This option was discussed with the Marshall Fire insureds, who rejected them on economic terms that they could not afford another expert opinion. The impasse continued.

The appraisal process was used on a handful of Waldo Canyon Fire cases based on hearsay information. One insured successfully collected an amount equal to their full replacement value. While I am not privy to the total amounts nor the full details of this one case, it is my understanding that a key component of their success was the selection of the umpire.

The ultimate dispute resolution mechanism is initiating legal action against the insurer. While that is a policy right after certain conditions are met, most insureds recognize that litigation will delay the claim resolution and will reduce their recovery by the amount of their attorney's contingency fee.

Parting Thoughts

Why should this article matter to insurance professionals and stakeholders facing wildfire exposures and claims? The following are several takeaways.

• Smoke claims are as varied as the fires that cause them. It is time to understand the unique dynamics of these claims.
• The multiplying effect of combining wind and wildfire creates more severe smoke claims. The insurance industry should find better ways to adjust these claims that benefit their customers' smoke recovery and the company's reputation and bottom line.
• Insurers should work with other stakeholders to clarify the measurement of postfire smoke damage and to develop sustainable best practices to mitigate these losses.
• In the absence of better practices to adjust wildfire smoke claims, other stakeholders may enter the arena seeking these standards.
• The insurers need to find better ways to resolve the occasional disagreements that may arise during the lifetime of smoke claims.

As an insurance professional for over 50 years, these real-world laboratories offer a different learning experience than traditional classroom training. I intend to share these insights with other insurance professionals, hoping that collectively we can start finding new and innovative ways to bring better solutions to the ever-increasing natural catastrophe victims that confront our industry. It is time to revisit, rethink, and reimagine better solutions for handling wildfire smoke claims.

I encourage your comments and suggestions for better risk management and claim solutions to this exposure. My preferred contact is my email address: [email protected].