California lawmakers rejected a proposal that would have stripped insurers of a core cost-recovery tool in wildfire litigation. The outcome preserves market stability in the near term, but leaves the underlying liability question unresolved.
On August 29, the California Legislature published the amended text of Senate Bill 492 (SB 492). Authored by Senator Josh Becker and Assemblymember Cottie Petrie-Norris, the bill replaced an unrelated youth-housing bond measure through a last-minute gut-and-amend.
The legislation dropped Gov. Gavin Newsom's push to eliminate insurer subrogation rights. Subrogation gives insurers the legal right to sue utilities to recover wildfire claim payouts. California's inverse condemnation doctrine makes utilities liable for wildfire damage regardless of negligence.
The American Property Casualty Insurance Association (APCIA) estimated that eliminating subrogation could raise statewide homeowners' premiums by 10% to 20%. That estimate drew on analysis shared by the governor's office. APCIA has not published the underlying methodology.
The association welcomed the outcome in a statement attributed to Denni Ritter, vice president of state government relations at APCIA. "We appreciate that lawmakers put forward a plan that protects Californians and preserves the affordability and availability of insurance," he said. "This outcome keeps costs with the parties responsible for wildfires and helps protect the progress California is making in stabilizing its insurance market."
The final bill preserves insurers' underlying right to pursue utilities for wildfire costs. SB 492 does impose new restrictions on how that right can be exercised. Attorney fees in insurer subrogation cases are now capped at 10% of the final settlement.
Insurers are also prohibited from selling subrogation claims to private equity firms or hedge funds. That restriction targets a practice that had added third-party litigation costs to the system. Law firms are barred from unsolicited contact with survivors for 30 days following a disaster.
The bill also establishes a California Wildfire Relief Fast-Pay program for future utility-caused wildfires. Valid claims must be determined within 60 days of receipt. Settlement offers must follow within 30 days after that. Survivors who participate retain the right to pursue utilities in court, though a limited stay applies during the Fast-Pay process.
Newsom described the result as "real progress" but called on lawmakers to return to structural reform in 2027. Newsom leaves office due to term limits, and the political coalition that produced SB 492 will not carry into the next session unchanged.
The legislative outcome arrives against a backdrop of sustained market stress. California's FAIR Plan was already carrying a growing share of the state's residential property risk before SB 492 was finalized. FAIR Plan enrollment rose 43% between September 2024 and December 2025, according to FAIR Plan data. That growth was driven largely by the January 2025 Los Angeles wildfires. Total FAIR Plan exposure reached $768 billion as of June, a 250% increase since September 2022.
A 29.1% FAIR Plan rate increase takes effect October 15 - the plan's largest approved increase in recent history. Regulators reduced the plan's original 35.8% request. The rate increase compounds pressure on a market where State Farm and Allstate remain closed to new homeowners business.
Six carriers have sought rate increases in exchange for commitments to write more policies in wildfire-distressed areas. Those commitments fall under Insurance Commissioner Ricardo Lara's Sustainable Insurance Strategy. Market normalization remains a multi-year process.
California is the only state to hold utilities strictly liable for wildfire damage caused by their equipment, regardless of negligence. SB 492 did not address the financial pressure that doctrine places on the state's $18 billion Wildfire Fund.
Pacific Gas & Electric, Southern California Edison, and Sempra Energy spent a record $16.7 million lobbying state lawmakers in the 2025-2026 legislative session. That figure was reported by Consumer Watchdog, citing California Secretary of State filings.
Newsom called on lawmakers to revisit the broader liability question in 2027. For brokers placing California property risks, subrogation rights remain intact and the actuarial pressure behind another potential rate increase has been deferred. The liability question that drives that pressure has not been settled.
