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Fire Victims Can’t Intervene in PG&E’s Insurance Battle

A trust for paying wildfire victims can't interfere in a $400 million insurance fight that will determine how much money fire survivors can get for liability claims against former Pacific Gas and Electric leaders, a bankruptcy judge ruled Tuesday.

A bankruptcy judge concluded that a trust for paying fire victims has no right to intervene in a private arbitration dispute between PG&E and its insurers.

FILE - In this Nov. 8, 2018 file photo The Camp Fire rages through Paradise, Calif. An Associated Press review shows widespread problems with the four “public safety power shutoffs” the utility started rolling out in 2018, a year before massive blackouts paralyzed much of California in recent months. Interviews and documents obtained under public records requests reveal persistent failures and broken promises that in some cases compromised public safety. (AP Photo/Noah Berger, File)

SAN FRANCISCO (CN) — A trust for paying wildfire victims can't interfere in a $400 million insurance fight that will determine how much money fire survivors can get for liability claims against former Pacific Gas and Electric leaders, a bankruptcy judge ruled Tuesday.

U.S. Bankruptcy Judge Dennis Montali denied the PG&E Fire Victim Trust’s motion to intervene in an arbitration dispute between PG&E and its insurers.

When PG&E emerged from bankruptcy last year, it assigned the right to pursue breach of fiduciary duty claims against PG&E officers and directors for alleged fire safety shortcomings related the 2017 North Bay fires and 2018 Camp Fire.

To vindicate those claims, the Fire Victim Trust sued 22 former PG&E board members and executives in April. But the maximum fire victims can recover is limited by PG&E’s maximum insurance coverage.

Insurers say that limit is $200 million, based on a cap in PG&E’s 2017 policy. PG&E and the Fire Victim Trust insist the maximum is $400 million because insurance is capped at $200 million in 2017 and 2018, which adds up to $400 million over two years.

At a June 15 hearing, Fire Victim Trust attorney Frank Pitre insisted his client is an essential party to the arbitration dispute and should therefore be allowed to take part in it.

“Our point here is we, by virtue of the assigned claim that has a risk of having the value of that claim impaired, we are an indispensable party,” Pitre said.

In a 7-page ruling issued Tuesday, Judge Montali disagreed. Citing California appellate court case law, the judge concluded that no prior decision gave someone with legal claims against an insured entity the right to sue that entity’s insurers.

The Fire Victim Trust also argued that language in PG&E’s bankruptcy exit plan gave it the power to vindicate rights under the insurance policies. Again, Montali begged to differ.

He wrote that PG&E’s bankruptcy plan gave the trust a right to pursue claims against the utility’s officers and directors. It did not entitle the trust to sue PG&E’s insurers, he concluded.

Montali then went one step further, noting that even if he accepted the trust’s positions on its status as an indispensable party and right to sue insurers, he would still deny their request to intervene. That’s because the arbitration process has already started.

“Even if the court could bypass the operative provisions of the Plan or these compelling state authorities, it is apparent that the Arbitration has begun and there is no authority to permit the court to order that the Trustee join it,” Montali wrote.

At the June 15 hearing, PG&E lawyer Richard Slack said the utility did not oppose letting the trust monitor the arbitration proceeding and consult with PG&E on strategy. However, the insurers opposed the trust’s request and effectively blocked it from even monitoring the proceeding.

Retired Justice John K. Trotter of California’s Fourth Appellate District runs the multibillion-dollar Fire Victim Trust established as part of a plan to bring PG&E out of Chapter 11 bankruptcy last year.

Trotter acknowledged in a letter to fire victims in January that the trust was $1 billion short of its intended value due to PG&E’s lower than expected stock price. The trust was intended to make $13.5 billion available to fire victims through a mix of cash and liquidated shares of PG&E stock. More than 86,000 claims for compensation were filed with the trust.

Trotter came under fire last month when KQED reported that the trust racked up $51 million in expenses while fire victims had received less than $7.2 million in payments. Trotter responded in a May 17 video that he has hired 300 staff members to help process tens of thousands of claims so fire victims can get paid more quickly.

Trotter noted that the trust has an oversight committee that watches spending and that he is doing his best to keep the trust’s administration costs as low as 1%.

“If I hire more people, the overhead goes up,” Trotter said. “If I don’t hire more people, it takes longer to get the money out.”

The trust recently reported that it had paid out more than $327 million in preliminary and pro rata payments to more than 13,000 fire claimants as of June 15.

PG&E emerged from 17 months of bankruptcy brought on by a potential $30 billion or more in wildfire liabilities in July 2020 after paying $25.5 billion in settlements for wildfires likely sparked by the company’s equipment in 2015, 2017 and 2018.

PG&E and attorneys for the trust and the utility’s insurers did not immediately respond to requests for comment Tuesday evening.

Insurers involved in the dispute include Associated Electric & Gas Insurance Services Limited, Energy Insurance Mutual Limited, North American Specialty Insurance Company, Great Lakes Reinsurance (UK) SE, Endurance Risk Solutions Assurance Company, Berkley Insurance Company, American International Reinsurance Company, Ltd., Allianz Global Risks Us Insurance Company, Liberty Insurance Underwriters Inc., Starr Indemnity & Liability Company, U.S. Specialty Insurance Company, Continental Casualty Company, Barbican Managing Agency Limited, Twin City Fire Insurance Company, Argonaut Insurance Company, and Houston Casualty Company.

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