APPEAL, ARBITRATE, APPRAISE: A Forthcoming Rallying-Cry for the Victims of the California Wildfires

By Thomas Riley

Seven days into the 2025 new year, the most expensive natural disaster in United States history broke out.[1]  29 people were killed, and at least 16,000 structures were destroyed.[2]  Damages estimations have been varied.  One analyst firm reasoned the fires could cost as much as $35 billion[3], another thought $45 billion,[4] and the University of Southern California thinks $75 billion.[5]  Among the hardest hit neighborhoods was Altadena, California.[6]  Northwest Altadena stood as one of the few areas black families could purchase homes in Southern California, as “81% of Black households in Altadena own homes, compared with 32% across Los Angeles County.”[7]  Moreover, the median value of a black household in Altadena was 48% higher than the national average.[8]  While residents of Altadena and other Southern California neighborhoods begin rebuilding efforts amid the difficulties of navigating toxic waste[9], State Farm got to work by “urge[ing] the state’s insurance regulator to approve an emergency hike in rates” to offset the large payouts the company will be forced to make.[10]

Accordingly, while wildfire victims rummage through the remnants of their homes, they will also prepare to fill out “weeks or months of paperwork” to prove their losses.[11]  In their weakened state, these victims should expect settlement pressure by insurance adjusters and disaster professionals who look to quickly resolve homeowners’ claims for “less than they are entitled to under their policies.”[12]  In recent months, antipathy for the insurance industry has hit a breaking point,[13] and the wildfires represent a fruitful subject matter by which to explore the insurance implications. 

In California, when an insured party files a claim for property damage, their first step—understandably—is to file a submission with their respective insurance company.[14]  If a resident does not have access to traditional property fire insurance, California’s FAIR plan is an insurance safety net which guarantees all “property owners have access to basic fire insurance.”[15]  Unfortunately, a recent $1 Billion bailout to the FAIR plain by private insurance companies is expected to drive up insurance costs for California homeowners.[16]  Climate change has exacerbated the frequency of natural disasters across the country, which has in-turn prompted insurance companies—most notably State Farm in California—to stop accepting applications for coverage.[17]

When wildfire victims submit a claim which insurance companies inevitably dispute, one way to resolve this occasionally protracted disagreement is through the process of appraisal.  Appraisal is “an Alternate Dispute Resolution, which can resolve disagreement when the Carrier and Policyholder do not agree on the amount of loss.  It is an alternative to a lawsuit.”[18]  Accordingly, under Louise Gardens of Encino Homeowners’ Ass’n, Inc. v. Truck Ins. Exch., Inc. appraisals are a form of arbitration.[19]  For that reason, “appraisals are generally subject to contractual arbitration law and its related statutory scheme.”[20]  Moreover, the benefit of the appraisal process is that “all fire policies issued in California” are required to comply with a “standard form that includes an appraisal provision as set forth in Insurance Code section 2071.”[21]

In practice however, appraisal represents only a limited form of arbitration and is distinguishable from typical arbitration.  For instance, an “arbitrator’s role is closely analogous to that of a judge in a judicial proceeding,” which means they are empowered to decide questions of “contract interpretation, historical fact or general law” as is necessary to facilitate their understanding of the case.[22]  Conversely, California’s Insurance Code fashions appraisal as an informal standard “with no depositions, interrogatories, and the like, no formal rules of evidence, and no court reporter.”[23]  Critically, appraisers’ role is only to determine the economic value of the items at issue; “It is certainly not their function to resolve questions of coverage and interpret provisions of the policy.”[24]

In the context of the California wildfires, appraisal stands to be a useful tool which victims could rely upon as they hope to restore their homes and lives.  For legal practitioners and insurance companies, appraisal similarly is poised as a functional mechanism to resolve time sensitive financial disputes, while avoiding lengthy and inefficient litigations.

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[1] LA blaze damage likely to be largest wildfire insured loss in US history, Reuters (Jan. 13, 2025), https://www.reuters.com/world/us/la-blaze-damage-likely-be-largest-wildfire-insured-loss-us-history-2025-01-13/ [https://perma.cc/VUB7-UHVG]; Southern California Edison probing possible link to Los Angeles fires, Reuters (Feb. 6, 2025), https://www.reuters.com/world/us/southern-california-edison-probing-possible-link-los-angeles-fires-2025-02-06/ [https://perma.cc/6S9W-XW9U].

[2] Umair Irfan, The LA fires have a shocking price tag - and we'll all have to pick up the tab, Vox (Feb. 5, 2025), https://www.vox.com/climate/397756/la-wildfire-insurance-palisades-california-fair-plan-climate [https://perma.cc/7Q6M-G8L7].

[3] Verisk Estimates Industry Insured Losses for the Palisades and Eaton Fires Will Fall Between USD 28 Billion and USD 35 Billion, Verisk (Jan. 22, 2025), https://www.verisk.com/company/newsroom/verisk-estimates-industry-insured-losses-for-the-palisades-and-eaton-fires-will-fall-between-usd-28-billion-and-usd-35-billion/ [https://perma.cc/JY4Z-D8MM].

[4] CoreLogic Estimates the Eaton and Palisades Fires Are Causing Devastating Initial Property Losses Estimated to Be Between $35 Billion to $45 Billion, CoreLogic (Jan. 16, 2025), https://www.corelogic.com/press-releases/corelogic-estimates-the-eaton-and-palisades-fires-are-causing-devastating-initial-property-losses-estimated-to-be-between-35-billion-to-45-billion/ [https://perma.cc/KWS4-LFRF].

[5] Economic Impact of the Los Angeles Wildfires, UCLA Anderson Sch. of Mgmt. (Jan. 29, 2025), https://www.anderson.ucla.edu/about/centers/ucla-anderson-forecast/economic-impact-los-angeles-wildfires [https://perma.cc/V2MN-CCKS].

[6] Christine Mai-Duc, Los Angeles Fires Ravaged a Historic Black Neighborhood. Now Residents Wonder Who Will Return, Wall St. J. (Jan. 20, 2025), https://www.wsj.com/us-news/los-angeles-fires-ravaged-a-historic-black-neighborhood-now-residents-wonder-who-will-return-554e7964 [https://perma.cc/LP8A-G4H7].

[7] Id.

[8] Id.

[9] Pien Huang, Hazmat crews tackle toxic waste left behind by LA’s fires, NPR (Jan. 17, 2025), https://www.npr.org/sections/shots-health-news/2025/01/17/nx-s1-5261085/los-angeles-wildfires-hazardous-waste [https://perma.cc/GQ92-H4C9].

[10] State Farm Seeks Rate Hikes in California to Offset Wildfire Payouts, Reuters (Feb. 4, 2025), https://www.reuters.com/business/finance/state-farm-seeks-rate-hikes-california-offset-wildfire-payouts-2025-02-04/ [https://perma.cc/JUD9-W6WC].

[11] After the fire, the insurance battles: LA victims’ ordeal may just be beginning, The Guardian (Jan. 10, 2025), https://www.theguardian.com/us-news/2025/jan/10/california-los-angeles-fires-home-insurance [https://perma.cc/97JG-YNNZ].

[12] Id.

[13] Tom Murphy, Words on ammo in CEO shooting echo common phrase on insurer tactics: Delay, deny, defend, Associated Press (Dec. 15, 2024), https://apnews.com/article/ee73ceb19f361835c654f04a3b88c50c [https://perma.cc/Z2FS-9DRP].  

[14] Residential Property Claims Guide, Cal. Dep’t of Ins., https://www.insurance.ca.gov/01-consumers/105-type/95-guides/03-res/res-prop-claim.cfm [https://perma.cc/CC9W-RYD4].

[15] About FAIR Plan, Cal. FAIR Plan Ass’n, https://www.cfpnet.com/about-fair-plan/ [https://perma.cc/8RYM-9ZU8].

[16] Christopher Flavelle, California Seeks $1 Billion From Insurers to Shore Up FAIR Plan After LA Fires, N.Y. Times (Feb. 11, 2025), https://www.nytimes.com/2025/02/11/climate/california-fairplan-insurance-bailout.html [https://perma.cc/R5YV-ZGRX].

[17] Christopher Flavelle, California Wildfires Threaten Insurers Already Teetering From Climate Shocks, N.Y. Times (Jan. 8, 2025), https://www.nytimes.com/2023/05/31/climate/climate-change-insurance-wildfires-california.html [https://perma.cc/3NND-3XNC].

[18] What is Appraisal?, Ins. Appraisal and Umpire Ass’n (last visited Feb. 13, 2025) https://iaua.us/What-is-Appraisal [https://perma.cc/M6V8-LMSF].

[19] Louise Gardens of Encino Homeowners’ Ass’n, Inc. v. Truck Ins. Exch., Inc. 82 Cal.App.4th 648, 658 (2000).

[20] Alexander Cohen & David Bederman, First-Party Insurance Appraisals, Advoc. Mag., Nov. 2022, https://www.advocatemagazine.com/article/2022-november/first-party-insurance-appraisals [https://perma.cc/93JM-2HHN]; Lee v. California Capital Ins. Co. 237 Cal.App.4th 1154, 1165 (2015).

[21] Lee, 237 Cal.App.4th at 1166.

[22] Kirkwood v. California State Auto. Assn. Inter-Ins. Bureau, 193 Cal. App. 4th 49, 58, (2011).

[23] Id.

[24] Jefferson Ins. Co. v. Superior Ct., 3 Cal. 3d 398, 403 (1970).