California Wildfires: Insurance Moratoriums and Challenges for Insurers Amid Catastrophic Losses

The Southern California wildfires will have a devastating effect on the community in Los Angeles and surrounding areas. It is currently estimated that the Palisades and Eaton fires have destroyed more than 12,000 structures in less than a week, and an even higher number of families and businesses have been displaced (temporarily or worse). The economic impact will be massive. And, as of this writing, there are new fires popping up. Until the Santa Ana winds pass, the threat will remain dangerously high.

In response to these unprecedented losses, on January 9, 2025, the California Department of Insurance issued Bulletin 2025-1 (the “Bulletin”) which imposes a one-year moratorium on the cancellation or nonrenewal of residential insurance policies in zip codes that are expressly identified in the Bulletin and have been impacted by the current wildfires.  

The Bulletin was issued pursuant to California Insurance Code section 675.1(b)(1), which states that an insurer “shall not cancel or refuse to renew a policy of residential property insurance for a property located in any zip code within or adjacent to the fire perimeter, for one year after the declaration of a state of emergency . . . based solely on the fact that the insured structure is located in an area in which a wildfire has occurred.” 

Importantly, the moratorium applies to “polic[ies] of residential property insurance,” which means “a policy insuring individually owned residential structures of not more than four dwelling units, individually owned condominium units, or individually owned mobile homes, and their contents, located in this state and used exclusively for residential purposes or a tenant's policy insuring personal contents of a residential unit located in this state.” In other words, homeowners’ policies, renters’ policies, and policies covering the contents of residential dwellings are within the scope of the moratorium.  The Bulletin identifies the zip codes subject to the moratorium, which include areas impacted by the Palisades and Eaton fires; however, the applicable areas may be amended if additional neighborhoods are impacted by the fires. 

Clyde & Co Observation: As the Palisades and Eaton fires continue to burn, the Department of Insurance may amend the zip codes within the moratorium.  Insurers must remain vigilant in monitoring supplemental bulletins issued by the Department as the geographic area of the moratorium may expand.

With respect to the enumerated zip codes, the Bulletin states that “no admitted or non-admitted insurer shall issue a notice of cancellation or non-renewal due to wildfire risk for one year, starting on January 7, 2025, for any policy of residential property insurance . . .”

Clyde & Co Observation: The moratorium set forth in the Bulletin is arguably broader than that which is authorized under section 675.1(b)(1). The Bulletin prohibits cancellations “due to wildfire risk,” but the statute prohibits cancellations “based solely on the fact that the insured structure is located in an area in which a wildfire has occurred” (emphasis added). Thus, where other reasons exist for cancellation or nonrenewal of a policy, such as material misrepresentation in the insurance application, the limitations of the moratorium likely would not apply.

The moratorium on cancellation or nonrenewal of residential policies is in place for one year. Notably, under section 675.1, it is the declaration of a state of emergency, not the Bulletin, that triggers the moratorium. Thus, the one-year moratorium for the affected zip codes commences from the date of Governor Gavin Newsom’s state of emergency declaration issued on January 7, 2025.  

The Bulletin further states that all residential property insurers writing policies in California must offer to rescind notices of cancellation and nonrenewal notices issued due to wildfire risk on or after January 7, 2025.  Insurers must offer to reinstate or renew residential policies in effect as of January 7, 2025, if such policies were cancelled due to wildfire risk, on or after that date, for properties within the zip codes designated in the Bulletin.

Clyde & Co Observation: Because the moratorium was in effect from two days prior to the issuance of the Bulletin identifying the applicable zip codes, insurers should review residential cancellation and nonrenewal notices issued in this time period to ensure compliance with potentially evolving geographic requirements. 

Notably, section 675.1(c) of the California Insurance Code provides that moratorium outlined in the Bulletin does not apply under any of the following circumstances: 

1. If the named insured’s willful or grossly negligent acts or omissions materially increased any of the risks insured against under the policy;
2. If losses unrelated to the post-disaster loss condition of the property occur that render the risk ineligible for renewal; and 
3. If there are changes to the insured property beyond the catastrophe-damaged conditions of the structures and subsurface landscape that make the property uninsurable. 

Section 675.1’s one-year moratorium has been invoked at least 34 times since the statute was enacted in 2018. A list of all such instances, along with a tool to identify zip codes currently subject to a moratorium, can be found on the California Department of Insurance website. 

On January 9, 2025, the California Department of Insurance also issued Notice 2025-01 (the “Notice”).  The Notice highlights additional statutes applicable to losses arising from the declared disaster and announces certain other measures in response to the wildfires.  Specifically, the Notice reminds insurers that California Insurance Code section 675.1(a)(3) requires an insurer to offer renewal of a residential policy for at least two annual renewal periods following a total loss to the insured property as a result of a declared disaster.  

The Notice also imposes a 60-day grace period for the payment of premiums for residential property insurance policies in the event of a state of emergency, as required under California Insurance Code section 2062. Though the grace period applies to properties located in the affected area, and the Notice suggests that insurers consider extending the grace period beyond the required 60 days, particularly for individual policyholders who have been acutely impacted by the wildfires and are unable to timely pay their premiums.

Finally, the Notice asks that insurers consider foregoing certain pending cancellations in areas near and within the enumerated area codes.   Although not mandatory, the Notice calls on insurers to forgo pending cancellations and nonrenewals of residential property policies issued during the 90 days prior to January 7, for properties located within or around the wildfires.  This request applies to pending cancellations and nonrenewals that were set to take effect on or after January 7, 2025.  The Notice calls for insurers to pause these pending nonrenewals for at least six months from January 7, 2025.    

While not unprecedented, the Bulletin and Notice present challenges to insurers who issue residential property insurance policies in California.  Insurers underwriting residential insurance policies in California should be attentive to the following issues:

• Though the moratorium applies only to insured properties within the identified zip codes, policyholders in nearby areas who receive notices of nonrenewal during the next several months may take additional steps to scrutinize the basis for cancellation or nonrenewal.  If the insured property is located in close proximity to the identified zip codes, policyholders may seek to contest cancellation or nonrenewal.  Insurers should consider these issues with cancellations and nonrenewal of residential insurance policies in wildfire-prone areas of California.  
• The restrictions in the Bulletin apply to residential property insurance in effect at the time of the declared emergency.  Insurers should continually evaluate wildfire risks in different regions in writing new policies, including assessing the risks associated with similar moratoriums in the event of future wildfires.  

We will continue to monitor for additional measures that the California Department of Insurance may take in response to the impact of the wildfires, and we are ready to answer questions about the impact of these developments.