Key California insurance laws passed after previous major wildfires now play crucial role in ongoing L.A. wildfire crisis

By Nicholas Insua, Garrett Nemeroff, Kya Coletta, Amber Finch & Kalid Knox on 22 January 2025

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).