Lawmaker signals possible overhaul of California's $21B Wildfire Fund

California's $21 billion Wildfire Fund, which offsets claims from utility-sparked wildfires, may soon undergo major changes.

Assembly Bill 1554, introduced last Thursday, could pave the way for an overhaul--or even replacement--of the fund, directing lawmakers to act on recommendations from an upcoming state report evaluating new approaches to wildfire risk and recovery. As introduced, it declares the Legislature plans to implement recommendations from an April report by the Wildfire Fund Administrator.

That report, due in April, could have major implications for homeowners, utilities, and insurers. It could, for example, require utilities to be found at fault before paying claims or imposing new mitigation requirements on some homeowners. The report might even recommend replacing the current fund with an alternative structure.

As currently drafted, AB 1554 merely states that it is "the intent of the Legislature to enact subsequent legislation to implement the recommendations set forth in the report."

"It is important that we evaluate alternative structures to efficiently and expeditiously compensate those harmed while maintaining accessibility to property insurance as well as safe, affordable, and reliable energy for Californians," said the bill's author, Assembly Member Lisa Calderon, D-Whittier, in an email. "The Legislature will have to act swiftly once we receive these, and other, recommendations. AB 1554 ensures we will have a legislative vehicle to do so."

But Brad Kuhn, chair of the Eminent Domain & Inverse Condemnation Group at Nossaman LLP in Irvine, said the bill could be a significant part of the larger fight over wildfire insurance in the coming year.

"It may be premature to speculate as to specific recommendations included in the report, but we expect the report to propose a robust and comprehensive overhaul of the way that California addresses wildfire risks," Kuhn said in an email. "Based on the directive from SB 254, we would expect to see recommendations addressing all aspects of wildfire matters -- from compensation to homeowners, wildfire mitigation, public utility regulation, insurance and more. AB 1554 lays the legislative groundwork for the state to turn those recommendations into reality in a very short timeframe in 2026."

The California Wildfire Fund is holding a pair of webinars, on Feb. 6 and March 6, to solicit input for the final report. According to the fund's website, the report is intended to help "evaluate new models" to balance the competing needs of providing affordable and reliable energy, cutting climate emissions, keeping insurance affordable and mitigating wildfires.

The fund, and the most recent potential changes, are the product of a series of increasingly devastating fires that overwhelmed courts and left the home insurance system teetering. It was first created in 2019 after a series of catastrophic fires and utility bankruptcies. It is designed to pay eligible claims arising from fires ignited by participating electric utilities. It is funded through a combination of ratepayer charges and shareholder contributions, and utilities must meet safety and financial requirements to access it.

The study was authorized by a law Newsom signed last year, SB 254. An Assembly analysis of that bill cited arguments from environmental groups and ratepayer organizations that major utilities in California have nearly doubled the price they charge for electricity over the past decade.

SB 254 came in the aftermath of fires in Altadena and Pacific Palisades and a July report from the California Catastrophe Response Council. That body, created at the same time as the fund, found that Southern California Edison could "fully exhaust" the fund if found liable for those two fires. That finding sent ripples through California's insurance industry, including a renewed effort to shore up the FAIR Plan, the state's home insurer of last resort.

Calderon's district sits just a few dozen miles from the two Los Angeles fires. Last year, Calderon authored two new laws relating to the FAIR Plan, including one allowing it to issue revenue bonds.

She also introduced another bill last week. AB 1559 would require insurers to disclose and share aerial images of properties used to determine rates or coverage and require that any images used be taken within 180 days of when a notice is sent to policyholders.

"As the insurance crisis continues, it is imperative we do what we can to protect policyholders," Calderon said in a news release Friday. "AB 1559 empowers homeowners by adding a layer of transparency when it comes to nonrenewals."