On January 27, 2025, California state senators introduced Senate Bill 222 as part of the Affordable Insurance and Climate Recovery Act, aimed to improve insurance affordability in the state. The Bill, if signed into law, would create a private right of action for insurers and California’s FAIR Plan to recover losses related to climate disasters from oil and gas companies, which the Bill’s authors accuse of fueling climate change and intensifying the January 2025 Los Angeles Wildfires. This novel approach seeks to provide insurers with a path to recover anticipated costs associated with wildfires.
The 2025 Los Angeles wildfires
Earlier this year, a series of destructive wildfires spread throughout the Los Angeles metropolitan and surrounding areas, resulting in significant losses. The fires required thousands to evacuate their homes, displaced over 200,000 people, disrupted businesses, resulted in more than two dozen fatalities, and caused an overall disruption to the communities. [i] The Eaton and Palisades fires alone consumed nearly 40,000 acres of land, destroying homes, businesses, and landmarks in Altadena and Pacific Palisades.
Estimated total damages and economic loss from the wildfires exceed 250 billion USD.[ii] Insurance industry losses for property damage, temporary housing, and related claims are projected to be $35 billion to $45 billion, potentially ranking these wildfires among the costliest U.S. natural disasters.[iii] The California Department of Insurance has already reported over $4.2 billion claims paid, of the approximately 31,000 claims filed in connection with the wildfires.[iv] These financial repercussions extend internationally, with European reinsurers projected to absorb substantial losses, collectively estimated at $1 billion.[v]
The Affordable Insurance and Climate Recovery Act
California’s insurance market is facing significant challenges, with rising premiums impacting businesses and homeowners, increasing reliance on the state’s insurer of last resort, i.e., the FAIR Plan. California state senators have identified the growing frequency and severity of climate-related events, such as the wildfires, as a key contributor to these pressures.
In response to California’s insurance challenges, exacerbated by the Los Angeles Wildfires, State Senator, Scott Wiener, introduced Senate Bill 222 as part of the Affordable Insurance and Climate Recovery Act on January 27, 2025. Its objective seeks to improve insurance affordability by creating a legal pathway for insurers to recover damages from oil and gas companies following major climate-related events, like the Los Angeles Wildfires. By shifting the cost burden from California policyholders to fossil fuel companies, identified by the Bill’s drafters as contributors to climate change, proponents of the Bill believe that this will resolve the challenges to California’s insurance market. If it is signed into law, the Bill will provide a direct legal pathway for insurers, and the FAIR Plan, to pursue oil and gas companies in California. While the precise scope of this private right of action remains unclear, the intent is to recoup damages paid by insurers for climate-related catastrophes, therefore, mitigating premium increases.
Responses to the bill
California legislators who back S.B. 222 assure that this approach will stabilize the insurance market, in the face of increasing climate-related risks, thereby providing financial relief to insurers and mitigating the rising costs of insurance for Californians.
According to the Bill’s proponents, the increasing frequency and severity of catastrophes are attributed to climate change. As stated in a press release, the proponents accuse major fossil fuel companies of misrepresenting their products’ environmental impact, thus exacerbating climate-related events—one of the consequences being increased insurance costs for Californians. State Senator, Henry Stern, a supporter of S.B. 222, argues that the insurance market and policyholders should not bear the brunt of the economic impact of climate change but those who have heightened the climate crisis should bear the costs.
Critics of S.B. 222, on the other hand, have challenged its approach and disputed the premise that fossil fuels companies should bear financial responsibility for climate-related damages. CEO of California Independent Petroleum Association (CIPA), Rock Zierman, stated that the Bill is an “attempt to divert attention away” from the actual causes of the devastation from the Los Angeles Wildfires. Zierman attributed the magnitude of the wildfires to arsonists, environmental activist lawsuits, and mismanagement by state and local authorities. CIPA, a trade association representing approximately 300 independent crude oil and natural gas producers, royalty owners, and supply companies operating in California, see its members targeted by the proposed legislation and face a potential floodgate of litigation.
Comment: Takeaways for insurers
By establishing a legal mechanism for insurers, including the FAIR Plan, to recover losses from fossil fuel companies for climate-related disasters, S.B. 222 offers a novel approach to recovery for the insurance industry. As the first legislation of its kind, the Bill could pioneer similar efforts for other states impacted by severe weather events in states like Texas, Louisiana, and Florida.
Should you require further details regarding this bill or wish to explore its potential impact, please do not hesitate to contact a member of our team.
[i] The Department of Forestry and Fire Protection of California, Current Emergency Incident Report, https://www.fire.ca.gov/incidents.
[ii] Monica Danielle, AccuWeather estimates more than $250 billion in damages and economic loss from LA wildfires, Jan. 13, 2025, https://www.accuweather.com/en/weather-news/accuweather-estimates-more-than-250-billion-in-damages-and-economic-loss-from-la-wildfires/1733821.
[iii] CoreLogic, CoreLogic Estimate the Eaton and Palisades Fires are Causing Devastating Initial Property Losses Estimated to be Between $35 billion to $45 billion, Jan. 16, 2025, https://www.corelogic.com/press-releases/corelogic-estimates-the-eaton-and-palisades-fires-are-causing-devastating-initial-property-losses-estimated-to-be-between-35-billion-to-45-billion/.
[iv] California Department of Insurance, LA County Wildfire Claims Tracker, https://www.insurance.ca.gov/01-consumers/180-climate-change/Wildfire-Claims-Tracker.cfm.
[v] Indrabati Lahiri, California wildfire costs set to impact European reinsurance giants, 13 Jan. 2025, https://www.euronews.com/business/2025/01/13/california-wildfire-costs-set-to-impact-european-reinsurance-giants.
