How California courts are clearing the air on fire claims

California appellate courts rendered fewer significant insurance-related decisions in 2025 than they did in years past. Indeed, the California Supreme Court rendered none in 2025, compared with three important decisions in 2024.

However, one of those 2024 decisions resonated significantly with litigation in 2025. That decision, Another Planet Entertainment, LLC v. Vigilant Insurance Co., 15 Cal. 5th 1106 (2024), came to the forefront of insurance coverage disputes arising out of losses from the Eaton Fire and the Pacific Palisades Fire.

In Another Planet, the Court addressed whether claimed business-interruption losses arising from COVID-19 involved "direct physical loss or damage to property." The court held that the presence of SARS-CoV-2, the virus causing COVID-19, did not constitute such "direct physical loss or damage to property." The Court held, "Under California law, direct physical or loss to property requires a distinct, demonstrable physical alteration to property." It further held, "The physical alteration need not be visible to the naked eye, nor must it be structural, but it must result in some injury to or impairment of the property as property."

In the aftermath of the Eaton Fire and the Pacific Palisades Fire, insureds and insurers are disputing whether houses that are still standing after the fire have suffered the requisite alteration. Several courts issued decisions in 2025 that provide guidance on this issue.

In Bottega, LLC v. National Surety Corp., Case No. 21-cv-03641 JSC (N.D. Cal. Jan. 10, 2025), the court denied the insurer's motion for summary judgment on claims arising from the North Bay Fires. The insured's restaurant closed for one day during the fires, opened to serve firefighters, and then closed for a week after the fires. A year later, a site inspection identified smoke and particulate damage. The insurer admitted that the fires caused smoke, soot, or ash damage and a direct physical loss. The court noted that those admissions "are consistent with case law recognizing that '[c]ontamination of a structure that seriously impairs or destroys its function may qualify as direct physical loss.'"

In Gharibian v. Wawanesa General Insurance Co., 108 Cal. App. 5th 730 (2025), the Second District Court of Appeal granted summary judgment for the insurer on a claim arising out of the Saddle Ridge wildfire. The insureds claimed that wildfire debris entered their home, which smelled of wildfire smoke. However, that smell dissipated within three months. The insurer paid what it contended was an appropriate amount to clean the house. Citing Another Planet, the court rejected the insureds' s claims against the insurer. Finding that Another Planet's reasoning "squarely applies here, it said that because "all evidence indicates that the debris was 'easily cleaned or removed from the property,'" it did "not constitute 'direct physical loss to property.'" The court noted, "Whereas a virus is more like dust and debris that can be removed through cleaning, ... smoke is more like asbestos and gases that physically alter property."

In Aliff v. California Fair Plan Ass'n, Case No. 21 STCV20095 (Los Angeles Super. Ct. June 24, 2025), the insured contended that the California Fair Plan policy improperly restricted coverage for losses arising from smoke damage from a fire. The insured argued that the policy's restriction of coverage to loss "evidenced by permanent physical changes" improperly limited coverage in violation of the California Insurance Code's requirements and was contrary to the holding in Another Planet. The court agreed, noting that the policy "offers less coverage than the general coverage" mandated by the Insurance Code's standard-form policy. The court also rejected insurer's reliance on policy language stating that smoke damage must be "visible to the unaided human eye" or "detected by the unaided human nose of an average person." It held that the policy language does not "accord[] with Another Planet and the Insurance Code, saying that "the focus on 'seeing' and 'smelling' smoke damage" does not "conform to the meaning of direct physical loss articulated by Another Planet ...." 

In Maxus Metropolitan, LLC v. Travelers Property Casualty Co. of America, 148 F. 4th 999 (8th Cir. Aug. 28, 2025), the insured sought coverage for losses from the need to evacuate tenants from multiple buildings months after a fire damaged another building in the complex. The insured claimed that carcinogenic soot was present throughout those buildings. The insurer hired a hygienist who reported seeing no odor or stains indicating smoke infiltration. At trial, the insurer argued, among other things, that "microscopic soot cannot constitute 'physical loss or damage' as required under [its] policy." The insurer appealed an adverse judgment. The 8th Circuit held that "the presence of microscopic soot" can qualify as "a physical loss or damage" if it meets "the required degree of physicality" and "render[s] the property unusable or uninhabitable." It said, "Unlike a viral infection--but like asbestos--soot is 'permanent absent some intervention,' ... and thus meets the policy's physicality requirement." It also found sufficient evidence that the presence of soot could "pose a health risk," thereby making the property uninhabitable.

In Napa Valley Limoncello LLC v. Nationwide Agribusiness Insurance Co., Case No. 24-cv-03243-HSG (N.D. Cal. Dec. 31, 2025), the court addressed an insured's claim that smoke from Napa Valley wildfires penetrated the wooden barrels causing spoilation of the spirits in those barrels. The court considered extensive expert evidence before denying the insurer's motion for summary judgment. It relied on Another Planet, concluding that a jury could find that "there was a physical change in the spirits" based on an increase of "smoke compounds" in the spirits.

Meanwhile, the California Department of Insurance also rejected notions that invisible smoke and other damage could not be insured. As 2025, Commissioner Ricardo Lara stated: "The Department is aware of recent cases interpreting "direct physical loss of or damage to" property, or similar insuring language, in the context of claims for smoke damage. These recent cases do not support the position that smoke damage is never covered as a matter of law. Rather, the California Supreme Court's decision in Another Planet confirms that smoke damage can be covered where a policy insures against 'direct physical loss of or damage to' property, or substantially similar terms." Bulletin 25-7 (Mar. 7, 2025) (footnotes omitted).