A California appeals court has ruled that wildfire debris does not automatically constitute "direct physical loss or damage," upholding a lower court's dismissal of a breach of contract lawsuit over a partially denied homeowners insurance claim.
The case stems from an October 2019 wildfire that burned about half a mile from the plaintiff’s home. The fire caused debris to enter the home, with additional debris falling outside and in the swimming pool.
However, the property did not sustain any burn damage, according to the court order. The plaintiff later testified that smoke odors inside the home dissipated within three months.
The case and the subsequent decision could have ripple effects across the industry, especially in the wake of the recent California wildfires. State Farm, one of the state’s biggest insurers, has said that it paid out close to $500 million in claims following the wildfires that have ravaged the Los Angeles region.
The case involves Wawanesa General Insurance Co, which hired PuroClean to inspect the home and estimate the cost of cleaning. The initial estimate totaled $4,308.90.
Instead of hiring PuroClean, the policyholders engaged a hygienist to reinspect the home, concluding that it could be fully cleaned by wiping surfaces, using a HEPA vacuum, and power washing the exterior. The reinspection also confirmed there was no burn damage.
Wawanesa then hired an industrial hygienist, who agreed the home could be cleaned using routine methods, including wiping surfaces with disposable cloths and vacuuming the attic with a HEPA filter.
Rather than hiring a cleaning service, the policyholders opted to clean their home themselves. By December 2019, they reported finding no visible wildfire debris inside or outside. In March 2020, they obtained a new estimate, which put the cost of cleaning at more than $35,000.
After receiving the updated estimate, Wawanesa said that it engaged a third-party vendor to reassess the claim. The vendor inspected the property with the plaintiffs’ counsel and PuroClean, resulting in a revised estimate of $20,718.09.
In September 2020, Wawanesa issued an additional payment of $16,409.19, accounting for the new estimate, minus the deductible and previous payments. In November 2020, the insurer paid an additional $2,400 for pool cleaning, despite earlier inspections not recommending it.
Despite receiving more than $20,000 in total payments, the policyholders filed a breach of contract lawsuit in November 2020. Wawanesa sought to have the case dismissed, arguing that the policy did not cover the claim since no physical damage had occurred.
The insurer cited multiple inspections that found no evidence of direct physical loss. The trial court ruled in Wawanesa’s favor, prompting the appeal.
The appeals court affirmed the lower court's decision, saying that Wawanesa’s settlement payments did not establish coverage where it did not otherwise exist.
The ruling cited California law, which requires direct physical loss or damage to involve a "distinct, demonstrable, physical alteration" to the property. While that alteration does not need to be visible or structural, the court stated it must result in some injury or impairment of the property itself.
The court found that no direct physical loss had occurred, as the debris had not altered the property in a lasting manner. Instead, the order stated, the debris was removed through standard cleaning methods.
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