Fire insurance squeeze hinders a key goal: preventing fires

PARADISE >> D.J. Gomes and his logging crew were working in California’s wine country last fall, helping clear vegetation away from power lines to reduce the ever-growing wildfire risk. While they were gone, fire came for their hometown.

The disaster that followed, the Camp Fire, killed 86 people and virtually leveled Paradise, where Gomes’ house was one of the few spared. His loneliness has started to ease as stores reopen and displaced neighbors move into new modular homes. But getting back to work has been more complicated.

Gomes owns Crossfire Tree & Vegetation, one of many companies that have been contractors for utilities like Pacific Gas & Electric in fire-prevention work. State law makes the utilities liable for fires caused by their equipment, increasing the urgency of trimming trees and maintaining the power grid. But contractors face liability, too, if fires are traced to what they did or failed to do. And that is making it harder to get the insurance needed for the work.

“Every year I go to renew, it’s a huge fight,” Gomes said. Despite his company’s safety record, “they keep increasing the amount of insurance they want you to have.”

Before he first went to work for PG&E after the 2015 Butte Fire, which scorched more than 70,000 acres in the Sierra foothills, Gomes said it cost around $1,500 to buy $1 million in annual liability coverage. He spent $15,000 last year to secure $5 million in liability coverage then required by PG&E.

In addition to surging premiums, insurance brokers said that some contractors were seeing policies canceled or were unable to secure new coverage. Tree work has always been hard to insure because of hazards like falls from 100-foot trees and the heavy use of chain saws. Now, after several seasons of major wildfires, the risk calculus has changed.

“They’re starting to apply wildfire exclusions,” said Milton Smith, a senior vice president at the national insurance brokerage McGriff, Seibels & Williams. And without wildfire coverage, Smith said, a fire traced to a contractor’s job site can be “a business-ending event.”

At the heart of the insurance anxiety is a provision of the state constitution known as inverse condemnation. That rule holds utilities responsible for fires even if they are not negligent — a doctrine that PG&E has lobbied to change as it contends with tens of billions of dollars in potential claims for fires attributed to its equipment, including the Camp Fire.

To work for PG&E, contractors must agree to absorb the liability for any lawsuits over death, injuries or property damage — during or after the fact — in areas where they work.

The result can be multimillion-dollar payouts. In 2007, after two fires ignited by San Diego Gas & Electric equipment, the utility sued two of its contractors over work they had been responsible for — tree trimming and power-pole maintenance — at fire sites. The contractors agreed to a $370 million settlement.

How much contractors might pay for more recent fires is unclear. Since PG&E filed for bankruptcy protection in January, victims’ lawyers have requested extensive information about the company’s contractors and argued at a May hearing that tree trimmers, inspectors and other vendors could be liable for up to $1 billion.

“If a tree falls on a line, there’s a reasonable claim against the tree trimmer for screwing up, right?” said Michael Wara, director of the Climate and Energy Policy Program at the Woods Institute for the Environment at Stanford University. “They’re at least partly responsible.”

Now the question is how much of the burden contractors can be asked to bear, especially as PG&E tells regulators that it cannot secure enough crews to confront a yearslong backlog of maintenance around power lines.

“When the utilities talk about the limited labor supply, part of what they’re really talking about is the fact that these companies will not do business with them,” Wara said. “Because doing that exposes the tree-trimming companies to enormous potential liability that they cannot insure.”

The world’s largest tree company, Asplundh of Pennsylvania, allowed its longtime contract with PG&E to expire late last year. A subsidiary of Asplundh, Trees Inc., was named in a wrongful-death lawsuit brought by two women whose father was killed in the Butte Fire, sparked when a PG&E power line was hit by a dead tree that the suit said the contractor had failed to address. The case is in limbo, since no verdict was reached before PG&E declared bankruptcy, freezing lawsuits. Asplundh did not respond to requests for comment.

Paul Doherty, a PG&E spokesman, acknowledged the concerns of contractors about the availability and cost of insurance. But he said that the cost of contract labor had risen for reasons “primarily related to supply and demand” and that it was hard to judge how much of the increase was attributable to insurance.

As officials try to head off another devastating wildfire season, there are signs that much remains to be done.

An August report by a court-appointed monitor found “systemic” issues with PG&E’s fire mitigation work, including a nearly 50% shortfall in identifying fire hazards, as well as indications that power lines had come in contact with vegetation that contractors said they had cleared. The report, part of the utility’s criminal probation from a 2010 gas pipeline explosion, also found “record-keeping defects” in PG&E’s system for contractors that may make it unclear who is doing work.

The confusion is evident to Steve Sando, who lives in forested hills above Napa Valley where a 2017 fire destroyed a barn and trees on his property. More than a dozen crews have made inspections of his land, resulting in a hodgepodge of “rainbow trees” that were spray-painted four colors to denote hazards but were never taken down, he said.

“At first, I thought, ‘These people don’t have it quite together,’ but it was an emergency, so you cut them some slack,” said Sando, who owns Rancho Gordo, the heirloom beans purveyor. “It really just kept going, the PG&E drama.”

PG&E’s chief executive, Bill Johnson, said the company was doing all it could. It has about 4,500 workers engaged daily in tree maintenance, he said in an interview, and by the end of the year will have felled or trimmed 1.8 million trees. It is also changing inspection procedures and improving contractor training, he added.

“This is a huge effort,” he said, “and we’re learning as we go.”

The success of that effort may help shape how insurers and investors respond to climate-related risks.

“We are marching steadily toward a future in which the private market may conclude that these are uninsurable risks,” said Dave Jones, a former state insurance commissioner. “In some ways, that’s already happened for the utilities.”

In July, California lawmakers approved a plan to create a state-backed insurance pool to expedite payments to victims after future wildfires. Homeowners in fire-prone areas who report their own insurance cancellations and skyrocketing costs are increasingly directed to secondary insurance markets or state plans, similar to flood insurance, as a last resort.