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.