Cyber incidents can pose a threat to any business. A recent bankruptcy case, In re Jerico Pictures, Inc., d/b/a National Public Data (“National Public Data”),[1] demonstrates that the growing recognition of the danger posed by cyber risks is also leading to greater expectations on companies to protect themselves from those risks, including through insurance.

National Public Data operated a subscription-based data service specializing in employee background checks, relying on bulk data collection of public records such as criminal records, addresses, and employment history. In December 2023, the company suffered a significant data breach orchestrated by the notorious hacker “USDoD,” compromising a database containing millions of records of Personally Identifiable Information. This breach led to sensitive data surfacing on dark web marketplaces. The fallout was severe, as National Public Data faced nearly two dozen class action lawsuits, regulatory scrutiny, customer attrition, and the obligation to notify and provide credit monitoring to potentially hundreds of millions of individuals under various state laws. In the face of these pending liabilities, the company filed for Chapter 11 bankruptcy on October 2, 2024.

The United States Trustee (the government entity responsible for safeguarding the interests of stakeholders in bankruptcy proceedings) moved to dismiss National Public Data’s bankruptcy petition on various grounds, including that the debtor failed to maintain appropriate insurance coverage to protect its remaining estate.[1] Section 1112(b)(4)(C) of the U.S. Bankruptcy Code, 11 U.S.C. § 1112(b)(4)(C), provides that a bankruptcy petition may be dismissed for the debtor’s “failure to maintain appropriate insurance that poses a risk to the estate or to the public.” In its motion, the U.S. Trustee noted that National Public Data’s insurer had already denied coverage for the pre-petition breach and that the debtor had no liability insurance to cover a post-petition data breach.[2] The U.S. Trustee argued that the company’s failure to secure adequate insurance against data breaches not only put the estate at imminent risk but also posed broader dangers to the public, in violation of Bankruptcy Code § 1112(b)(4)(C).[3]

Notably, there are no previously reported cases where §1112(b)(4)(C) has been applied to cyber insurance. Because unsecured creditors are prohibited from seizing estate assets to satisfy claims while a bankruptcy proceeding is pending, insurance for the estate must be sufficient to prevent losses that could reduce the estate’s value for unsecured creditors. “Thus, a policy of insurance that insures tangible property against casualty loss such as fire insurance, but only protects the value of a secured lender’s interest in the collateral may be inadequate to protect the risk to the estate.”[1] The United States Trustee Manual lists a number of types of insurance that the Trustee may consider necessary to protect the estate and the general public depending on the circumstances of the bankruptcy case, including fire and extended liability insurance, general liability insurance, worker’s compensation and unemployment insurance, employee health insurance, malpractice insurance, product liability insurance, and liquor or dramshop insurance.[2] However, the manual makes no mention of cyber coverage, and §1112(b)(4)(C) appears not to have been applied to such coverage previously.

So, what does this mean?

National Public Data demonstrates that as cyber incidents pose increasing danger to any business, expectations as to how companies manage those risks may increase as well and may have implications for corporate governance. A major cyber incident may be able to trigger “event-driven” shareholder derivative claims, in which plaintiffs allege that the board breached its duties by failing to adequately manage the company’s cyber risks. A well-structured cyber insurance program that effectively covers cyber-related losses can serve as a first line of defense, potentially reducing the likelihood or severity of such claims altogether. As cybersecurity threats continue to escalate, especially as artificial intelligence becomes more prevalent, managing the associated risk through insurance may evolve from protection that is nice to have if possible into an insurance must-have like D&O coverage. It is more important than ever that companies have strategies in place to mitigate the growing risk of cyber incidents.  

[1] 7 Collier on Bankruptcy P 1112.04.

[2] See 3 United States Trustee Manual, ch. 11, Case Administration, § 3-3.2.3; see also In re Van Eck, 425 B.R. 54, 59 (Bankr. D. Conn. 2010) (citing Gilroy v. Ameriquest Mortg. Co. (In re Gilroy), 2008 Bankr. LEXIS 3968 (B.A.P. 1st Cir. Aug. 1, 2008)); In re Daniels, 362 B.R. 428, 435-36 (Bankr. S.D. Iowa 2007).

[1] Emergency Mot. Of United States Trustee to Dismiss This Case And Request For Expedited Hearing 1, ECF No. 24, In re Jerico Pictures, Inc., No. 24-20281-BKC-SMG (Bankr. S.D. Fla. October 23, 2024). That motion was ultimately granted, and the petition dismissed, on other grounds. See Order Granting United States Trustee’s Emergency Motion To Dismiss Case And Request For Expedited Hearing (DE 24), ECF No. 31, In re Jerico Pictures, Inc., No. 24-20281-BKC-SMG (Bankr. S.D. Fla. October 31, 2024); Transcript, ECF No. 37, In re Jerico Pictures, Inc., No. 24-20281-BKC-SMG (Bankr. S.D. Fla. March 5, 2025).

[2] Emergency Mot. Of United States Trustee to Dismiss This Case And Request For Expedited Hearing 3, ECF No. 24, In re Jerico Pictures, Inc., No. 24-20281-BKC-SMG (Bankr. S.D. Fla. October 23, 2024).

[3] Emergency Mot. Of United States Trustee to Dismiss This Case And Request For Expedited Hearing 4-5, ECF No. 24, In re Jerico Pictures, Inc., No. 24-20281-BKC-SMG (Bankr. S.D. Fla. October 23, 2024).

[1] In re Jerico Pictures, Inc., No. 0:24-20281-BKC-SMG, (Bankr. S.D. Oct. 2, 2024).

Key Takeaways

  • The English Court of Appeal provides rare guidance on the application of key aspects of the Insurance Act 2015.
  • Differentiating between warranties and representations crucial to assessing the extent of policy cover.
  • Reminder of insurers’ ability to control risk with carefully worded Duty of Assured clauses, without contravening the provisions of the Insurance Act 2015.

Background

Earlier this year saw the Court of Appeal hand down judgment in Scotbeef Ltd v D&S Storage Ltd & Lonham Group Ltd [2024] EWHC 341 (TCC), overturning the earlier decision of the High Court in Scotbeef Ltd v D&S Storage Ltd (In Liquidation) [2024] EWHC 341 (TCC).

Scotbeef Ltd (Scotbeef), a UK-based meat supplier, used refrigeration facilities provided by D&S Storage Ltd (D&S) to store its meat products. A consignment of meat owned by Scotbeef became contaminated while stored at D&S’ warehouse, prompting Scotbeef to issue a claim for damages.

D&S sought to defend the claim on the basis that the contract between D&S and Scotbeef incorporated the “Terms & Conditions” of the FSDF trade association (the FSDF terms).

D&S held an insurance policy with Lonham Group Limited (Lonham), which contained a ‘Duty of Assured’ clause’ and the following “conditions precedent to liability”:

  1. Sub-clause (i): D&S must declare all trading terms on inception of the policy. The declared terms were stated to be the FSDF terms.
  2. Sub-clause (ii): D&S must continuously trade under the declared terms.
  3. Sub-clause (iii): D&S must take all reasonable and practicable steps to ensure that their trading conditions were incorporated in all contracts.

Scotbeef sought to pursue Lonham for an indemnity. The core issue was whether D&S had any right of indemnity against Lonham under the insurance policy which could be enforced by Scotbeef following the liquidation of D&S.

The Insurance Act 2015

Before considering the outcome of the court cases, a quick reminder of some of the key provisions of the Insurance Act 2015 (the Act):

  • Duty of Fair Presentation of Risk (section 3): Policyholders must either disclose every material circumstance which they know, or they ought to know, or give the insurer sufficient information to put a prudent insurer on notice that it needs to make further inquiries for the purpose of revealing those material circumstances.
  • Abolition of “Basis of the Contract” clauses (section 9): The Act abolished clauses that converted pre-contractual information provided by the policyholder into warranties, thus preventing insurers from avoiding liability for minor inaccuracies.
  • Suspension of liability (section 10): An insurer’s liability is suspended, not discharged, in the event of a breach of warranty, allowing for liability to resume if and when the breach is remedied.
  • Terms not relevant to actual loss (section 11):  Insurers are prevented from avoiding liability for losses unrelated to a breach of warranty.
  • Contracting out and transparency (section 16 and 17): The Act restricts insurers’ ability to contract out of its provisions, requiring appropriate transparency and clarity for any “disadvantageous terms” that put a policyholder “in a worse position”

The High Court ruling

In Scotbeef Ltd v. D&S Storage Ltd, the High Court ruled that the FSDF terms had not been incorporated into the contract, as D&S had failed to provide reasonable notice of their incorporation to Scotbeef.

Lonham argued that D&S’s failure to incorporate the FSDF terms breached the Duty of Assured clause, (principally sub-clause (ii)) and it was therefore entitled to avoid the policy. Finding in favor of Scotbeef, the High Court held that sub-clauses (i), (ii), and (iii) of the Duty of Assured Clause must be read together and noted as follows:

  • Sub-clause (i) is a pre-contractual declaration and is incapable of being a warranty or condition precedent (pursuant to section 9 of the Act).
  • Sub-clause (iii) places D&S “in a worse position” and so has no effect (pursuant to section 16 of the Act).
  • Sub-clauses (i)-(iii) fail to satisfy section 17 of the Act (transparency requirements for “disadvantageous terms” – particularly that D&S would be in breach of sub-clause (iii) if it does not take all reasonable and practicable steps, even if the FSDF terms have in fact been incorporated).
  • Sub-clauses (i)-(iii) are representations and so within the fair presentation of risk provisions in section 3 of the Act.

The Court of Appeal judgment

The issue at the heart of Lonham’s appeal went to the proper characterisation of sub-clauses (ii) and (iii), and whether they were warranties and conditions precedent, not representations (and thus not subject to the fair presentation of risk provisions in the Act). Additionally, it was argued by Lonham that the judge had erred in applying the transparency requirements of section 17.

The Court of Appeal found that the High Court was wrong to construe the three sub-clauses together and noted as follows:

  • Sub-clause (i) is a pre-policy representation.
  • Sub-clauses (ii) and (iii) are ‘future warranties’ (dealing with trading conditions after the inception of the policy and during the policy period) and also conditions precedent (due to the clear wording of the policy), not representations.

Under the 2015 Act, if the insured breaches a warranty, the insurer’s liability is suspended until the breach is rectified (if possible). Sub-clauses (ii) and (iii) were therefore outside the scope of the fair presentation of risk provisions in section 3 of the Act.

As the FDSF terms had not been incorporated into the contract between D&S and Scotbeef, D&S was found to be in breach of the warranties in sub clauses (ii) and (iii). Section 10(2) of the Act explicitly provides that the insurer has no liability for any loss after a warranty has been breached but before it has been remedied; therefore, Lonham was entitled to avoid liability under the policy to indemnify D&S for the losses claimed by Scotbeef.

As to the transparency requirements in sections 16 and 17 of the Act, it was held that they do not apply as there was no attempt to contract out of the Act’s provisions – the policy expressly stated it was subject to the 2015 Act, and there was no disadvantageous term that put the insured in a worse position.

Commentary

The ruling stresses the importance of precise drafting of policies, including properly defining the nature of terms as warranties or representations. It is crucial for policyholders (not just their brokers) to review their policy wordings thoroughly, understand the representations or warranties made to their insurers, and ensure compliance with any warranties throughout the policy period.  This is especially the case when policies are renewed annually and business practices evolve. The ruling also flags to insurers the importance of ensuring that terms are clear and comply with the Insurance Act 2015 to manage potential liabilities effectively.

An insurer that breaches a duty to defend its insured for a lawsuit will typically be held liable for the expenses the insured “incurred in defending the suit, including reasonable attorney’s fees and court costs.” Primrose Operating Co. v. Nat’l Am. Ins. Co., 382 F.3d 546, 559-60 (5th Cir. 2004).  Depending on which state’s law controls a policyholder’s right to coverage, the insured may be able to rely on a presumption that the defense costs it incurred were reasonable, leaving the insurer with the burden to rebut that presumption.

Some states apply evidentiary presumptions for paid bills

In some states, paid bills in general are presumed reasonable as a matter of evidence law. Hawaii Rule of Evidence 303(c)(16), for example, provides: “A bill for goods or services that has been paid is presumed to be authentic and to embody fair and reasonable charges for the itemized goods or services.”  Illinois Rule of Evidence 803(24) similarly treats a “paid bill as … prima facie evidence that the charge was reasonable.” The Illinois Supreme Court has explained that “[t]he prima facie reasonableness of a paid bill can be traced to the enduring principle that the free and voluntary payment of a charge for a service by a consumer is presumptive evidence of the reasonable or fair market value of that service.” Arthur v. Catour, 833 N.E.2d 847, 854 (Ill. 2005).

Such rules have been applied to deciding whether attorney fees were reasonable. In Sorenson v. Fio Rito, 413 N.E.2d 47, 54-55 (Ill. App. 1980), the court looked to the presumption of reasonableness for paid attorney bills for taxation work. In Zapfel v. Xerox Corp., No. FST-X08-CV-166030461-S, 2022 Conn. Super. LEXIS 2262, at *25 (Stamford-Norwalk Jud. Dist. Super. Ct. Oct. 18, 2022), a case that found breach of a severance agreement, the court stated: “Attorney Adrian’s billing rate is presumptively reasonable as it is undisputed that the plaintiff, a sophisticated client, paid all of the bills without objection.” The court in Auxier v. Kraisel, 466 A.2d 416, 420-21 (D.C. Ct. App. 1983), adopted “the approach” that treats “paid bills for attorney’s fees as prima facie proof of reasonableness” in an action for breach of a property management company’s fiduciary duties.

Courts have employed the evidentiary presumption for the cost of defending policyholders as well.  E.g., Continental Western Ins. Co. v. Country Mut. Ins. Co., 3 F.4th 308, 319 (7th Cir. 2021) (“[T]he attorney’s fees in this case [‘to defend Hamel Fire in the underlying lawsuits’] were paid….  Thus, the district court’s award of that amount was presumptively reasonable.”).

Others courts hold payment is evidence of reasonableness

Even absent a presumption, payment may be considered evidence of reasonableness. In Century Woods Condo. Ass’n, Inc. v. Next Century Partners, LLC , No. 21SMCP00109, 2021 Cal. Super. LEXIS 99298, at *3-4 (Cal. Super. Ct., L.A. County Sept. 2, 2021), the court said it “believe[d] that it is some evidence as to reasonableness if the fees sought were actually billed and paid by the client.“ In a similar way, some federal courts have said “that the best evidence of whether attorney’s fees are reasonable is whether a party has paid them.” Cintas Corp. v. Perry, 517 F.3d 459, 469-70 (7th Cir. 2008). They examine attorney bills under market standards and reason that “[i]f the bills were paid, this strongly implies that they meet market standards.” Medcom Holding Co. v. Baxter Travenol Labs., Inc., 200 F.3d 518, 520 (7th Cir. 1999).

Many states presume reasonableness for wronged policyholders in particular

Many states recognize a presumption of reasonableness arising from the breach of an insurer’s defense obligation as well. In Olin Corp. v. Insurance Co. of North America, 218 F. Supp. 3d 212, 228 (S.D.N.Y. 2016), for example, the court stated: “Where an insurer has breached its duty to defend, the insured’s fees are presumed to be reasonable and the burden shifts to the insurer to establish that the fees are unreasonable.” One basis for presuming reasonableness in this context is the understanding that “it is unfair to let a breaching insurer nit-pick costs later when it could have—had it honored its duty to defend—initially directed the defense in any reasonable way it wished.”  Thomson Inc. v. Ins. Co. of N. Am.,11 N.E.3d 982, 1024 (Ind. App. 2014).

Policyholders should keep these evidentiary rules and presumptions in mind when they seek to recover the costs they incurred defending themselves. Even absent law entitling them to a presumption, they may benefit from cases recognizing payment as at least some evidence of reasonableness. 

On March 7, 2025, the California Department of Insurance issued Bulletin 2025-7, which provides crucial guidance on the handling of smoke damage claims for properties affected by the Los Angeles wildfires. This bulletin clarifies the Department’s position on insurance coverage for smoke damage and outlines the expectations for insurers in processing these claims. The bulletin also discusses Gharibian v. Wawanesa General Insurance Company in the context of the legal landscape surrounding smoke damage claims.

Gharibian Is Not A “Blanket Denial of Coverage” for Smoke Damage in All Instances

The bulletin addresses the implications of recent court cases on the coverage of smoke damage claims. The California Supreme Court’s decision in Another Planet Entertainment, LLC v. Vigilant Insurance Co. confirmed that smoke damage can be covered under policies that insure against “direct physical loss or damage to” property. The court clarified that such coverage requires a distinct, demonstrable, physical alteration to the property, which need not be visible to the naked eye or structural but must result in some injury or impairment to the property.

In contrast, the California Court of Appeal’s decision in Gharibian was limited to the specific facts of that case. The bulletin states that the court found that the plaintiffs’ evidence was insufficient to establish coverage for smoke damage. (A closer look of the decision reveals that the issue was not related to smoke damage at all; rather it was focused on ash and soot damage.)

The bulletin emphasized that the Gharibian decision should not be interpreted and applied as a blanket rejection of coverage for smoke damage in all instances, if at all. The Department stressed that whether a particular claim is covered depends on the specific policy language and the unique facts of each claim.

Guidance for Insurers

In the bulletin, the Department of Insurance advised that it expects insurers to handle smoke damage claims in compliance with all applicable laws, regulations and best practices. This includes adherence to California Insurance Code section 790.03(h) and section 2695.7(d) of the Fair Claims Settlement Practices Regulations.

California Insurance Code Section 790.03(h)

Section 790.03(h) outlines unfair claims settlement practices, which insurers must avoid. Insurers are required to adopt and implement reasonable standards for the prompt investigation and processing of claims. They must make good faith efforts to effectuate prompt, fair, and equitable settlements where liability is reasonably clear.

Section 2695.7(d) of the Fair Claims Settlement Practices Regulations

Section 2695.7(d) mandates that insurers conduct and diligently pursue a thorough, fair and objective investigation of claims. Insurers must not deny a smoke damage claim without conducting an appropriate investigation. It is also unreasonable for insurers to require policyholders to incur substantial costs to investigate their own claims. If professional testing is warranted, insurers are expected to contract and pay for these services.

Additional Guidance

The Department encourages insurers to consider the distribution of low-cost, commercially available at-home test kits for asbestos and other smoke damage contaminants as a reasonable first step in responding to and investigating certain smoke damage claims. Depending on the results of these at-home test kits, further investigation and processing may be warranted.

Conclusion

The California Department of Insurance will closely monitor how insurance companies handle smoke damage claims to ensure compliance with all laws and that policyholders receive the full benefits owed under their insurance policies. Insurers are urged to follow the guidance provided in Bulletin 2025-7 to ensure fair and equitable treatment of smoke damage claims resulting from wildfires. Policyholders with questions or concerns about their wildfire claims are encouraged to contact their insurance company or the Department directly.

In its judgment in Sky UK Ltd v Riverstone Managing Agency Ltd [2024] EWCA Civ 1567 the Court of Appeal has provided welcome clarification on several key issues relating to policy interpretation.

Background

Sky engaged Mace as the main contractor for its new headquarters under a Design and Build Contract. Mace was a named insured under a CAR policy underwritten by Riverstone and other insurers (the “Policy”).

Section 1 of the policy covered contract works, and the applicable insuring clause provided:

“The Insurers shall, subject to the Terms of this Contract of Insurance, indemnify the Insured against physical loss or damage to Property Insured, occurring during the Period of Insurance, from any cause whatsoever ….”

The focus of the claim related to issues on the newly built wooden roof. This was made up of 472 individual cassettes, into a number of which water had entered and remained for periods during construction. Mace had failed to erect a temporary roof to protect the partially installed cassettes, and the water ingress caused wetting of internal timbers, irreversible swelling and structural decay by the end of the period of insurance (“Deterioration Damage”). Further damage occurred after the period of insurance, including the worsening condition of the timbers and the spread of moisture (“Development Damage”).

Sky and Mace claimed under the Policy for the cost of replacing the roof and the associated investigation costs to determine the extent of the damage. Insurers disputed the claim, contending that;

  1. liability under the Policy was confined to the damage occurring within the period of insurance,
  2. each cassette constituted a separate event necessitating individual deductibles; and,
  3. investigation costs were not recoverable.

First instance decision

The judge at first instance held that:

  1. ‘Damage’ within the meaning of the policy was defined as any tangible physical change to the insured property that impaired its commercial value or use.
  2. Sky was entitled to indemnity for the cost of repairing the damage existing at the end of the period of insurance, but not for Deterioration or Development Damage occurring thereafter.
  3. A single deductible applied to Sky’s claim, as the failure to provide a temporary roof during construction was considered a single event under the retained liability provision.
  4. Investigation costs were not recoverable unless they revealed physical damage that occurred during the period of insurance.

Court of Appeal decision

Sky and Mace appealed point 4 above, and Insurers cross-appealed against the Court’s findings in respect of points 1, 2 and 3. The Court of Appeal allowed the Sky / Mace appeal and dismissed Insurers’ cross-appeal, holding that:

  1. The judge correctly adopted the definition of ‘damage’ as being any change to the physical nature of tangible property that impaired its value or usefulness to its owner or operator, in line with authorities interpreting the Criminal Damage Act 1971. This interpretation was key in determining the scope of coverage under the CAR policy.
  2. Sky was entitled to an indemnity for the cost of remedying not only the damage that occurred during the period of insurance but also the foreseeable development and deterioration damage occurring after the period of insurance, resulting from the insured damage. This application of contractual principles underscored the policy’s recognition of the ‘full cost of repairing, reinstating, or replacing property lost or damaged.’
  3. The judge concluded that it was correct that one deductible applied to Sky’s claim, on the basis that the word ‘event’ referred to the cause of the damage and not the damage itself. This interpretation is crucial in determining the application of deductibles in insurance claims.
  4. The Court found that investigation costs were recoverable if reasonably incurred to determine how to remediate the insured damage and the Development and Deterioration Damage. This was the case even where in certain areas the investigations revealed the absence of damage.

Comment

The Court of Appeal’s decision provides clarity for policyholders on several core issues which make up the foundation of claims under CAR policies.  It gives a policyholder comfort that they can claim for Deterioration and Development damages after the policy period has expired (subject to the express terms of the policy), under their CAR policy, as well as for the costs of any investigation to uncover the extent of the damage and remedial works required.

This closes a gap between CAR and buildings policies where the construction work has concluded prior to any buildings insurance being taken out, but the damage caused by that work may evolve over time.  Not all damage is immediately physically present during the policy period. It accords with business common sense, that any such damage which could be shown to have been caused by the construction work and then continued to get worse, should be covered under a CAR policy, unless subject to specific restriction. 

Conditions Precedent to Coverage

Insurance policies typically are subject to certain conditions precedent to coverage. As the name suggests, conditions precedent to coverage are obligations placed on the insured that, in the normal case, must be complied with in order for coverage to attach. 

Take a commercial general liability (or “CGL”) policy, for example. An occurrence-based CGL policy may purport to require an insured to notify the insurer “as soon as practicable” of an occurrence which may result in a claim. It may state that the insured should “cooperate” with the insurer in the investigation, defense and/or settlement of that claim, and it might further state that the insured shall not settle the claim without the insurer’s consent.

Each of the above examples seemingly provides an “escape hatch” to the insurer; should the policyholder fail to comply with a condition precedent to coverage, the insurer need not pay a claim otherwise covered by the policy. But that isn’t always the case.

The Futility Doctrine and Insurance Recovery

“The law does not require the doing of a futile act.”  Ohio v. Roberts, 448 U.S. 56, 74 (1980), overruled on other grounds Crawford v. Washington, 541 U.S. 36 (2004). The United States Supreme Court’s adage is no less true in the context of insurance coverage.

Consider the “late notice” defense. Where an insurer would have denied coverage for a claim irrespective of when the insured gave notice, many courts recognize that earlier notice would have been futile in such cases, and thus will not permit the insurer to deny coverage because of late notice for an otherwise covered claim. “Numerous jurisdictions have held that where an insurer denies liability on some other policy or coverage ground, the insurer cannot thereafter rely on the insured’s failure to give reasonable notice as a ground for avoiding liability. In other words, the insurer waives its right to argue ‘failure of notice’ once it has denied coverage on other grounds.”  Newman v. Scottsdale Ins. Co., 301 P.3d 348, 360 (Mont. 2013). 

Examples abound. See Tri-State Ins. Co. v. Smith, 449 S.W.2d 698, 700 (Ark. 1970) (“It is well settled that in an action on a liability insurance policy the insurer is precluded from defending its liability upon the ground of a violation by the insured of the policy provisions as to notice and forwarding of suit papers where the insurer has denied liability on some other ground.”); Shell Oil Co. v. Winterthur Swiss Ins. Co., 12 Cal. App. 4th 715, 763 (1993) (“If the insurer asserts that the underlying claim is not a covered occurrence or is excluded from basic coverage, then earlier notice would only result in earlier denial of coverage”); Strickler v. Huffine, 618 A.2d 430, 435 (Pa. Super. Ct. 1992) (where an insurer’s “strategy would have been to deny coverage and to refuse to participate in any defense” regardless of when notice was given, the policyholder “succeed[s] in demonstrating that [the insurer] suffered no prejudice attributable” to late notice).

This “futility doctrine” is not limited to late notice issues. Consent-to-settle clauses can sometimes operate as a forfeiture of coverage if a policyholder settles an underlying claim without the express consent of its liability insurer. But many jurisdictions, including New York and Pennsylvania, will allow a policyholder to enter into a reasonable settlement without first obtaining the consent of its insurer so long as the insurer has already denied coverage. See Isadore Rosen & Sons, Inc. v. Sec. Mut. Ins. Co. of N.Y., 291 N.E.2d 380, 382 (N.Y. 1972) (“The New York rule is that where an insurer unjustifiably refuses to defend a suit, the insured may make a reasonable settlement or compromise of the injured party’s claim, and is then entitled to reimbursement from the insurer, even though the policy purports to avoid liability for settlements made without the insurer’s consent.”) (quotation omitted); Kolve v. Aegis Ins. Co., 537 A.2d 7, 8 (Pa. Super. Ct. 1988) (recognizing the “well-established rule” that “a contracting party by his conduct may render inoperative conditions of the contract on which he might otherwise insist,” and holding “[i]t would have obviously been an unavailing effort for the [insured] to have sought the [insurer’s] consent for the settlement when he had already been advised by the [insurer] that it considered his policy coverage to be inapplicable”). An insurer “also releases its insured from the duty to cooperate by denying coverage or taking measures that render cooperation futile.” J.P. Morgan Securities Inc. v. Vigilant Insurance Co., 53 Misc. 3d 694, 702 (N.Y. Sup. 2016), aff’d, 151 A.D.3d 632 (N.Y. App. Div. 2017).

Takeaways

Policy conditions are important and should not be ignored. Providing timely notice of a claim and cooperating with its insurer gives an insured the greatest opportunity to preserve its rights and benefits under the insurance policy. That said, there clearly are circumstances where compliance with conditions precedent to coverage would be futile, and in such cases, an insured may still be entitled to coverage.

Should a dispute over coverage arise, policyholders should be weary of defenses predicated on a purported failure to comply with the notice condition, the duty to cooperate, or other conditions precedent to coverage. There is no standard, one-size fits all approach to analyzing the validity of such defenses, and policyholders should consider involving coverage counsel as early as possible to assess the availability of such defenses. It may just be that strict enforcement of a condition precedent to coverage would be futile.           

Introduction

Judge Corley’s (N.D. Cal.) January 10, 2025 decision in Bottega, LLC v. National Surety Corporation provides guidance for commercial policyholders who have closed down their businesses due to wildfires, smoke, ash and soot that is especially timely given the ongoing wildfires in Southern California. The decision highlights the complexities of business interruption insurance claims, distinguishes between smoke damage and claims involving COVID-19 and makes clear the importance of establishing a clear causal connection between physical damage and the suspension of operations.

Summary

  1. Business Interruption Coverage Requires Physical Damage: For business interruption coverage to be triggered, there must be a direct physical loss or damage to the property.
  2. Smoke Damage is Physical Damage: Smoke damage constitutes direct physical loss or damage to the property. Analyzing court precedent, Judge Corley (N.D. Cal.) concluded that smoke causes physical contamination that can alter property.
  3. Causal Connection and Genuine Disputes of Fact: The court found that there were genuine disputes of fact regarding whether the smoke damage caused the suspension of operations, which precluded summary judgment for the insurer and policyholders.

Background

In Bottega, LLC v. National Surety Corporation, a restaurant, retail café, and catering company sought insurance coverage for business income losses due to the North Bay Fires in 2017.

The relevant coverage provision in the insurance policy states:

We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your operations during the period of restoration. The suspension must be caused by direct physical loss of or damage to property at the premises described in the Declarations. . .caused by or resulting from any Covered Cause of Loss.

The businesses alleged that smoke damage from the fires caused them to suspend operations. Their insurer, National Surety Corporation, disputed the claims, arguing that there was no causal connection between the smoke damage and the suspension of operations; rather, the business closure was due to other external factors such as finance and staffing shortages. This led to both parties filing cross-motions for partial summary judgment.

Distinguishing Smoke from Cases Involving COVID-19

To trigger coverage, the Court found there must be some physicality to the loss of property, such as a physical alteration, physical contamination, or physical destruction. Bottega, LLC v. Nat’l Sur. Corp., No. 21-cv-03614-JSC, 2025 U.S. Dist. LEXIS 5666, at *10 (N.D. Cal. Jan. 10, 2025) (citing Inns-by-the-Sea v. California Mut. Ins. Co., 71 Cal. App. 5th 688, 707, 286 Cal. Rptr. 3d 576 (2021)).

National Surety cited COVID-19 cases “reject[ing] the claim that the need to clean the business premises during and after the business closure met the plaintiff’s burden of showing physical loss or damage.” Id. at *11.

Judge Corley (N.D. Cal.) found this unpersuasive, and distinguished smoke from COVID-19 by noting that smoke causes physical contamination that can alter property, whereas COVID-19, according to the case law National Surety cited, can be disinfected and does not cause physical alteration. Specifically, the court stated:

[T]he presence of COVID-19 on Plaintiff’s property did not cause damage to the property necessitating rehabilitation or restoration efforts similar to those required to abate asbestos or remove poisonous fumes which permeate property. Instead, all that is required for Plaintiff to return to full working order is for the [government orders and restrictions to be lifted].

Id. at *12. The court compared smoke to asbestos and gases that physically alter property, emphasizing that smoke contamination can render a property uninhabitable or unable to be used as intended. Id. The court referenced Inns-by-the-Sea v. California Mutual Insurance Co., 71 Cal. App. 5th 688, 707, 703 (2021) recognizing that:

Contamination of a structure that seriously impairs or destroys its function may qualify as direct physical loss.

Id. at *11. Accordingly, the court explained that smoke, like asbestos and gases, can cause physical damage that necessitates significant cleaning and restoration efforts. Id. at *11-12. Thus, Judge Corley (N.D. Cal.) held “the summary judgment record establishes as an undisputed fact that the direct physical loss or damage resulted from a Covered Cause of Loss[,]” which includes “[s]moke causing sudden and accidental loss or damage.” Id. at *12-13.

Issues of Fact Precluding Summary Judgment

Though Judge Corley (N.D. Cal.) held that there is no dispute that the fires caused smoke damage to the policyholder’s property, the court identified several issues of fact that were sufficient to deny summary judgment for both parties:

Extent of Cleaning and Repairs: The record did not specify what cleaning was required to reopen Bottega and when that cleaning was completed. Id. at *18-19. This lack of detail created a genuine dispute about the reason for the closure on October 9, 2017.

Reason for Closure: There was conflicting evidence about whether the businesses closed due to smoke damage or other reasons such as lack of customers or general disorder following the fire. Id. at *16-18, *20. The owner testified that the restaurant closed because the “facility prevented customers from coming . . . because it smelled like an ashtray.” Id. at *14. The restaurant, however, re-opened on October 10, 2017 while the Public Safety Order was still in place.  Id. This conflicting evidence created a genuine dispute of fact.

Financial and Staffing Issues: There was evidence suggesting that the closure was a business decision necessitated by finance and staffing shortages, not physical damage from smoke, soot, and ash. Id. at *20-21. The owner testified that he “didn’t have the money” to open the retail café and catering company at the same time as the restaurant. Id. at *20. This conflicting evidence also created a genuine dispute of fact. Id.

Key Takeaways

  1. Document Physical Damage Thoroughly: Under policies like the one in question, there must be a direct physical loss or damage to the property to trigger business interruption coverage. Considering that, immediately after the incident, take detailed images and photos of the damage. Smoke, ash, and soot damage may also constitute direct physical loss or damage to property. Maintain comprehensive records of all cleaning and repair activities, including dates, costs, and the extent of the work done. Reports from third-party experts might also be helpful to substantiate claims. If possible, avoid taking remediation actions without at least notifying the insurer and giving them an opportunity to inspect the premises and consent to the planned work.
  2. Establish a Clear Causal Connection: Under the Court’s ruling, there must be a clear causal connection between the physical loss or damage to property and the suspension of operations. If the loss or damage directly affected the ability to operate, such as making the environment unsafe or uninhabitable for customers and staff, then there may be a sufficient causal connection to claim business interruption coverage.
  3. Consider the Impact of External Factors: Bear in mind that other external factors, like road closures, government orders, finance issues or staffing issues might also cause or contribute to business interruptions. If external factors play a role, consider if and how they intersect with the physical damage to provide a comprehensive picture of the interruption’s causes. Consult with experienced coverage counsel to address these issues and how they should be presented to the insurer.

Reed Smith represented Tyson International Company Limited in obtaining a permanent anti-suit injunction against London market reinsurer, GIC Re, and successfully resisting the reinsurer’s application for a stay under section 9 of the Arbitration Act 1996. The judgment was handed down on 21 January 2025, and you can read it in full here: Tyson International Company Limited v Gic Re, India, Corporate Member Limited [2025] EWHC 77.

The Commercial Court was asked to consider two potentially competing clauses: (1) an exclusive jurisdiction clause in favour of the English Courts and (2) an arbitration clause in favour of arbitration in New York. To add to the complexity, the clauses were contained in two separate documents, both of which governed the terms of the policyholder’s property reinsurance. The Court’s approach to the construction of competing exclusive jurisdiction and arbitration clauses will be of interest to policyholders, brokers and insurers alike, and also provides helpful guidance on the effect of “hierarchy” (or “confusion”) clauses.

Background

Tyson International Company Limited (the “Captive Insured”) is a Bermuda captive reinsurance company of the global food production group, Tyson Foods. GIC Re (the “Reinsurer”) issued two reinsurance policies to the Claimant, for the period 1 July 2021 – 1 July 2022.

A coverage dispute arose between the Captive Insured and the Reinsurer following a substantial fire at one of Tyson Foods’ properties. A threshold issue arose between the Captive Insured and Reinsurer as to the forum of the dispute.

The “confusion” at the core of the jurisdiction dispute arose because two policy documents had been issued, both purporting to set out the terms of the relevant reinsurance cover, but containing conflicting forum selection provisions:

  1. Market Reform Contracts (“MRCs”) (i.e., standard form London (re)insurance market contracts), which contained exclusive jurisdiction clauses in favour of the English Courts; and
  2. Facultative Certificates under a US standard form, known as Market Uniform Reinsurance Agreements (the “MURAs”), which provided for arbitration in New York.

The Captive Insured sought to uphold the exclusive jurisdiction clause in the MRCs. The Reinsurer argued that the arbitration agreement in the MURA governed the coverage dispute.

The applicable principles of contractual construction

The Court applied the principles set out in Surrey County Council v Suez Recycling and Recovery Surrey Ltd [2021] EWHC 2015, to determine the proper construction of the competing jurisdiction and arbitration clauses:

  1. The Court should strive to give effect to an arbitration clause in the presence of a competing jurisdiction clause, but cannot do so where the clauses are in direct conflict with each other and are wholly irreconcilable;
  2. Unless the parties expressly and clearly say otherwise, there is a strong presumption that they are assumed to have agreed on a single (court or other) tribunal for the determination of all their disputes, at least when there is only one agreement/contractual document;
  3. Where there are two agreements, each containing different provisions for dispute resolution, the outcome may depend on the nature of the second agreement and its relationship to the first. A second agreement which varies the first will probably be treated differently to a situation where a second agreement seeks to make a clean break from the first agreement; and
  4. Where a contract contains a hierarchy or conflict clause, there should be no predisposition towards finding (or not finding) a conflict between two clauses. The ordinary rules of construction should first be deployed and only if those result in a conclusion that the two provisions are irreconcilable is recourse to the conflicts clause required.

Applying these principles, the Court held that, despite the fact that the MURAs were executed after the MRCs, the exclusive jurisdiction clauses contained in the MRCs took precedence, on the basis that the “confusion clause” within the MURAs gave priority to the earlier MRCs where the two clauses were “irreconcilable” and in the event of “confusion” (see [114] of the judgment). 

On the facts before the Court, the Judge held that there was “obvious confusion” (see [110]) and that the two clauses were irreconcilable: the terms of the two clauses inevitably conflicted, and it was not possible to read them together either as a Scott v Avery clause, or in a way that gave the English Court supervisory jurisdiction (see [114]).  

Conclusions

The principles applied by the Court in this decision apply as much to relationships between commercial parties more generally, as to between policyholder/insurers (or, as here, reinsured and reinsurer).

This decision highlights the importance of drafting clear dispute resolution provisions to reflect the intention of the parties at the time of policy placement or contract formation.

In cases that involve multiple contractual documents (whether insurance/reinsurance documentation, or commercial contracts under a framework agreement), what may be dismissed as typical boilerplate provisions should be considered carefully to ensure that there is consistency across the suite of documents.

The history of this case also demonstrates the willingness of the English Courts to grant quick and effective interim anti-suit (or, as here, anti-arbitration) relief to restrain foreign proceedings. In this instance, obtaining prompt interim relief from the English Court enabled the parties to resolve their jurisdiction battle in the single forum of the English Courts, without incurring the costs of fighting a separate dispute in New York.

We have previously reflected on some of our recommendations to approaching jurisdiction challenges– please see our recent article ‘Navigating Challenges to the Jurisdiction of the English Court’ for further guidance.

A Reed Smith team (comprised of Mark Pring, Catherine Lewis, Thomas Morgan and Daniel Sahraee) acted for the successful Claimant.

In the midst of the devastating and ongoing Los Angeles wildfires, on January 9, 2025, Insurance Commissioner Ricardo Lara issued the 2025 Annual Notice on behalf of the California Department of Insurance (DOI). The 2025 Annual Notice highlights what Commissioner Lara describes as “the most significant California laws pertaining to property insurance policies, including those related to a declared state of emergency.” Many of the laws highlighted in the 2025 Annual Notice were passed to address insurance company practices following other historic wildfires in California.[1] Now, these laws are poised to play a crucial role in helping policyholders impacted by the current L.A. wildfires.

For example, the 2025 Annual Notice outlines several key insurance code protections regarding additional living expense (or “ALE”) coverage:

  • Four Months of ALE Coverage in Advance. For policyholders who suffered a covered total loss arising from the L.A. wildfires, insurers are required to provide an advance payment of no less than four months of living expenses on request. Policyholders can also seek subsequent ALE payments by submitting proof of additional living expenses after the advance period.[2]
  • Two Weeks of ALE Coverage When Access Is Restricted Due to Orders of Civil Authorities. When a state of emergency is accompanied by an “order of civil authority restricting access to the home,” such as a mandatory evacuation order, insurers must provide at least two weeks of ALE coverage.”[3] Additional extensions must be provided for “good cause,” subject to other policy provisions.”[4]
  • Minimum ALE Time Periods and Potential Extensions for Reconstruction Delays. In the event of a covered loss relating to a state of emergency, insurers must provide ALE coverage for “no less than 24 months from the inception of the loss,” subject to other policy provisions.[5] If a policyholder encounters delays in the reconstruction process that are “beyond the policyholder’s control”—such as “unavoidable construction permit delays, lack of necessary construction materials, and lack of available contractors to perform the necessary work”—insurers must provide ALE coverage for up to 12 additional months.[6] For policyholders impacted by the L.A. wildfires, it is important to document all efforts taken to rebuild the affected property, including any construction-related delays.
  • ALE Coverage When the Home Is Uninhabitable. A policy that provides ALE coverage cannot restrict a policyholder’s right to recover ALE when the home is rendered uninhabitable due to a wildfire or other covered peril, even if the damage is not to the property itself.[7] An insurer may, however, “provide a reasonable alternative remedy that addresses” the condition making the home uninhabitable “in lieu of making living expense payments.”[8] As explained in a 2021 press release, this law was passed to address “problems after recent major fires when insurance companies denied benefits even though damaged power and water lines made homes uninhabitable,” and requires insurers to either pay ALE benefits while the home remains uninhabitable or provide reasonable alternatives that would restore habitability, such as a “portable generator in the case of downed power lines or a portable water source.”[9]

The 2025 Annual Notice also highlights several key laws regarding personal property (or “contents”) coverage, which may apply when a policyholder has suffered a total loss of their primary residence due to the ongoing wildfires:

  • Itemization Not Needed for Initial Contents Payment. Insurers must offer a payment for personal property coverage equal to at least 30% of the dwelling coverage limit (up to $250,000) without requiring policyholders to itemize their contents upfront. Policyholders retain the right to seek additional amounts by filing a full itemized claim for losses exceeding the initial payment. Insurers must notify policyholders of these options when claims are filed.[10] A guide for creating a home inventory can be found on the DOI’s website here.
  • Insurer-Specific Forms Not Required. Insurers cannot require a policyholder to use a company-specific inventory form if the policyholder can provide an inventory that contains substantially the same information.[11]
  • Categorical Inventory Permitted. Insurers must accept an inventory that includes “groupings of categories of personal property, including clothing, shoes, books, food items, CDs, DVDs, or other categories of items for which it would be impractical to separately list each individual item claimed.”[12] Still, policyholders should categorize items in a manner that reasonably reflects their losses while providing sufficient detail to support their claim.

Other significant insurance laws highlighted in the 2025 Annual Notice include:

  • Rebuilding or Replacing a Home in a New Location. Insurers must not limit or deny payment for eligible building code upgrade costs or replacement costs on the basis that the policyholder has decided to rebuild their home at a new location or purchase an already built home at a new location. But the measure of recovery cannot exceed the reasonable replacement cost at the insured property’s original location.[13]
  • No Land Value Deductions. Relatedly, the measure of recovery available to the policyholder to use toward rebuilding or replacing their home at a new location must be the same amount that “would have been recoverable had the insured dwelling been rebuilt at its original location, and a deduction for the value of the land at the new location shall not be permitted.”[14] According to Commissioner Lara’s 2021 press release on this law, after other major wildfires, some insurers “refused to include the value of land when paying a total loss claim, reducing the total payout by tends to hundreds of thousands of dollars. This change gives homeowners more choices in whether to rebuild or relocate their new home.”[15]
  • Ability to Combine Certain Coverages. In the event of a claim relating to a state of emergency, policyholders who choose to rebuild their homes are allowed to combine coverage limits for “dwelling” and “other structures” to meet reconstruction costs.[16]
  • Building Code Upgrade Coverage. If a policy includes building code upgrade (ordinance or law) coverage, it must provide adequate coverage for the increased costs to repair or replace the insured property to comply with current building codes.[17]

In addition to the 2025 Annual Notice, Commissioner Lara continues to issue specific notices and bulletins with important information for impacted policyholders.

For example, Notice 2025-01, also issued on January 9, 2025, directs all insurers to temporarily pause any pending non-renewals or cancellations sent to policyholders within 90 days before January 7, 2025, when Governor Newsom declared a state of emergency, and further requires insurers to take immediate steps to cease any pending non-renewals in L.A. wildfire areas.[18]

In conjunction with Notice 2025-01, Commissioner Lara issued Bulletin 2025-1, listing the known ZIP codes impacted by the Palisades and Eaton Fires, which would be subject to the one-year moratorium on cancellations and non-renewals. More recently, on January 14 and again on January 17, 2025, Commissioner Lara issued Amended Bulletin 2025-1, expanding the list of ZIP codes subject to the moratorium. The January 17 Bulletin includes ZIP codes of properties in the numerous areas impacted by the Palisades Fire, Eaton Fire, Hurst Fire, Lidia Fire, Sunset Fire and Woodley Fire. Policyholders living in affected areas should confirm their insurers’ compliance with these moratoriums and seek assistance if policies are improperly cancelled or not renewed.

The ongoing wildfires in Los Angeles present immense challenges for policyholders, ranging from evacuation and displacement to navigating the complexities of insurance claims. These difficulties are further exacerbated by the long-term repercussions of wildfire damage, including delays in reconstruction and disputes over coverage. This information is intended to help alleviate some of these concerns by outlining key California insurance laws that provide critical protections during a declared state of emergency.

We at Reed Smith would be pleased to speak with you about ways we can help navigate your insurance claims during this challenging time. If there are any questions please do not hesitate to contact the authors: Nicholas M. Insua, Garrett S. Nemeroff, Kya R. Coletta, Kalid Q. Knox, or the Global Chair of Reed Smith’s premier Insurance Recovery Group, Amber Finch.

[1] See https://leginfo.legislature.ca.gov/faces/billAnalysisClient.xhtml?bill_id=201920200SB872#.

[2] See Cal. Ins. Code § 2061(a).

[3] See Cal. Ins. Code. § 2060(c).

[4] Id.

[5] See Cal. Ins. Code § 2060(b)(1).

[6] See id.

[7] See Cal. Ins. Code. § 2060(b)(2).

[8] See id.

[9] See https://www.insurance.ca.gov/0400-news/0100-press-releases/2021/release078-2021.cfm.

[10] See Cal. Ins. Code § 10103.7(b).

[11] See Cal. Ins. Code § 2061(a)(2).

[12] See Cal. Ins. Code § 2061(a)(3).

[13] See Cal. Ins. Code § 2051.5(c)(1).

[14] See Cal. Ins. Code § 2051.5(c)(2) (emphasis added).

[15] https://www.insurance.ca.gov/0400-news/0100-press-releases/2021/release078-2021.cfm.

[16] See Cal. Ins. Code § 10103.7(a).

[17] See Cal. Ins. Code § 10103(c).

[18] Notice 2025-01 provided additional protections to policyholders. See https://www.reedsmith.com/en/perspectives/2025/01/california-commissioner-pauses-property-insurance.

The wildfires in Los Angeles, including the Palisades, Eaton, Hurst, and Runyon Canyon fires, are fast-moving, destructive, and scary. As of the evening of January 8, 2025, they have caused extensive damage and led to the evacuation of more than 100,000 residents. The Palisades Fire has burned 18 square miles, the Eaton Fire 16.5 square miles, and the Hurst Fire 0.8 square miles. At 5:50 p.m. PT, a new blaze had broken out in Hollywood Hills near Runyon Canyon, and by 7:40 p.m. PT, the Runyon Canyon Fire had spread 10 acres. Additionally, nearly 400,000 power customers were left without electricity due to preventive power shutoffs.

We at Reed Smith are closely following the progression of the devastating and costly wildfires ravaging Southern California. Our thoughts and prayers are with the entire region, especially those under mandatory evacuation orders. We offer the below tips and recommendations in the hope that they will help homeowners navigate the insurance claim process more effectively.

Wildfire Evacuation Tips

Of utmost importance is everyone’s safety. All homeowners subject to an evacuation order should prioritize evacuating promptly and safely and finding temporary housing. Insurers sometimes help homeowners find a place of similar size.

If possible, homeowners should try and take pictures or videos of each room and the exterior of their homes prior to evacuating. This documentation will be invaluable if an insurance claim needs to be filed. It is also important to pack important documents, such as insurance policies and related correspondence, tax and loan documents, passports, birth certificates, plans/blueprints of the home, wills, trusts, and other related documents. These steps ensure that homeowners are prepared to file comprehensive insurance claims if their property is damaged.

Save Your Evacuation Expense Receipts

Save receipts for any expenses incurred during evacuation. Claimants may be able to claim reimbursement for Additional Living Expenses (ALE) incurred due to the loss of use of their home because of a mandatory evacuation order or damage that makes it uninhabitable. ALE typically includes extra food and housing costs, furniture rental, relocation and storage, and transportation expenses. All may be reimbursed, but insurers will always require receipts.

In his January 8, 2025 Press Release, California Insurance Commissioner Lara advised that he sponsored SB 872, which: “requires insurance companies pay at least two weeks of ALE benefits to evacuees and provide an advance payment for no less than four months of ALE without an itemized inventory form, among other consumer protections. This important consumer protection law removes barriers for disaster survivors to get critical insurance benefits and streamlines wildfire recovery processes for homeowners who suffer from a loss.”

First Steps After a Wildfire:

  1. Those affected should take care of themselves and their family’s immediate needs first.
  2. They should also notify their insurance companies about the damage as soon as possible.
  3. Policy provisions, including deductibles, vary, so those affected should review their policies to confirm coverage, limits, and any other limitations and documentation requirements.
  4. Be sure to provide insurers with all documentation collected, follow their instructions for filing a claim, and keep a record of all communication with your insurance company, including the names of representatives spoken with and the dates of all conversations. Keep your paperwork organized.
  5. A certified industrial hygienist can test the air quality to ensure it is safe to return. Starting the cleanup process early is crucial to prevent further damage, especially for those with health sensitivities. The process should include clean up of debris, soot and ash, and address any water damage caused by fire suppression efforts. Homeowners with health sensitivities such as asthma should alert their insurer and ensure that the cleanup process is thorough to avoid aggravating respiratory conditions.

Insurance Claim Tips for Fire Losses

If an insurance claim is submitted, an insurance adjuster will eventually come and inspect. If they make a settlement offer on the spot, get a second opinion. Do not rush into signing contracts. If a claimant is considering hiring a public adjuster, check the public adjuster’s license and make sure they are properly licensed and in good standing.

Get copies of all paperwork signed. Fire claims can be complex due to hidden damage and potential disputes over repairs. Claimants should ensure thorough inspections of their property, address matching issues for repairs, and insist on proper cleaning to mitigate health risks. Those affected should also document all damage, and get professional inspections to assess the extent of the damage. Contractors and structural engineers can evaluate the damage and estimate the cost of repairs. Understanding the nuances of mold and smoke damage coverage is also essential for a successful claim. Insurers may ask claimants to inventory damaged and destroyed property.

For tips and tools on how to properly inventory damage, check out uphelp.org.

Give the insurer a chance to do the right thing, but, if the insurer is acting unfairly, be prepared to push back or get help. Insurance companies, for example, cannot cancel or refuse to renew insurance policies for homes in affected areas. On January 9, 2025, Commissioner Lara announced that he is using “moratorium powers to prevent insurance companies from canceling or non-renewing policies in wildfire-impacted areas, so people don’t face the added stress of finding new insurance during this horrific event.” His full press release can be found at insurance.ca.gov.  

By following the outlined tips, homeowners can navigate the insurance claim process more effectively and ensure their homes are restored to a safe and livable condition.

Speak with Policyholder-Side Insurance Experts

Insurers do not profit from paying claims, and will likely assert whatever defense they believe will absolve or mitigate their coverage obligations. Those affected should have an advocate that is highly experienced in making sure they receive the full benefit of their policies. This is what the attorneys in Reed Smith’s Insurance Recovery Group do all day, every day. We would be pleased to speak with you about ways we can help navigate your insurance claims during this challenging time. 

We at Reed Smith will continue to follow the progression of these devastating wildfires and all those affected will remain in our thoughts and prayers.