California Lawmakers Debate Wildfire Liability Reform

Flames consume a Kentucky Fried Chicken as the Camp Fire tears through Paradise, Calif., on Nov. 8, 2018. (AP Photo/Noah Berger)

SACRAMENTO, Calif. (CN) – California lawmakers explored reforms to wildfire victim compensation Wednesday while wrestling with how to pay for the catastrophic damage wrought by the last two wildfire seasons.

The California Commission on Catastrophic Wildfire Cost and Recovery recommended three main reforms, including the elimination of inverse condemnation, the creation of a statewide wildfire victims fund and making homeowner’s insurance more accessible and affordable.

“It needs to be a coordinated approach,” commission chair Carla Peterman told members of the California Assembly at a hearing in Sacramento on Wednesday.

The most controversial recommendation involves replacing inverse condemnation liability with an at-fault liability model. Currently, utilities are liable for all damages from wildfires caused by their equipment regardless of whether its maintenance of the equipment was faulty or negligent.

But the commission advocates a more fault-based approach in which utilities would be liable only if when a wildfire is due to improper maintenance or other issues.

The approach remains unpopular with certain lawmakers who feel reforms are aimed at immunizing corporations from the consequences of bad decisions.

“I am very concerned a lot of what I have read here more to do with figuring out how to help PG&E through all of this,” said Assemblywoman Eloise Gomez Reyes.

But attorney Michael Kahn said while inverse condemnation may look tough on utilities that fail to maintain and upgrade their systems, in practice it does not serve victims of wildfires.

“Under the current situation victims are terribly compromised because utilities are either bankrupt or threatening to go bankrupt,” he said.

The situation is playing out in real time, with PG&E filing for bankruptcy prior to a determination by fire investigators that the devastating Camp Fire in November 2018 was likely caused by faulty transmission lines owned and operated by the utility.

“It’s terribly prejudicial to the victims,” Kahn said. “It’s one of the reasons a changing inverse condemnation would be more fair.”

Kahn said inverse condemnation robs people of their day in court, while under an at-fault system victims would have legal recourse.  

But the other problems with the current system are financial, Peterman said.

If utilities must pay tens of billions of dollars in recovery costs, ratepayers – not the utilities – will bear the brunt of any policy meant to punish utilities.

Furthermore, credit rating agencies have downgraded the utilities in California due to wildfire risk, which makes raising capital through bonds and other mechanisms more expensive.

“We have a lot of catching up to do and it’s going to cost a lot of money,” Peterman said. “The question is: How do we give ourselves breathing room while still holding a utility’s feet to the fire?”

Other recommendations include large fines for utilities that could go into a victims fund, which is why the commission wants reform to be coordinated across the industry.

But a wildfire victims fund could also take away the incentive for homeowners and utilities to do what’s needed to prevent or lessen the damage from wildfires.

“Property owners need to buffer their homes and utilities need to do more work,” Peterman said.

For the commission, that’s where the insurance side comes in with property owners receiving credits for creating defensible space around their homes. Also, the financial community – including investors and executives – should be punished if utilities are found to be at fault for creating wildfire risk or sparking fires.

The ensuing discussion, particularly on whether the principle of inverse condemnation is enshrined in the California Constitution, proved there is still a lot of work to do before legislators can hammer out a bill codifying the recommendations.

Some of the doubts expressed by Reyes and others also showed passage of such a bill will not be easy.

But almost all the legislators realized the status quo is untenable and reform is needed, particularly for fire victims.

“Clearly we need to act,” said Assemblyman Chris Holden.

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