California’s $21 billion wildfire fund may be entirely drained by insurance claims and legal settlements linked to the Eaton fire.
The fire killed 17 people and destroyed more than 9,000 structures in Los Angeles. Investigators are examining whether equipment owned by Southern California Edison, the region’s primary electricity provider, sparked the blaze. If found liable, the utility would trigger a wave of claims to be paid out by the state wildfire fund, the report said.
According to a report in The Guardian, documents released by the Catastrophe Response Council ahead of its meeting on July 24 indicated the Eaton fire alone could test the financial limits of the fund. The council, which includes state officials and public members, oversees the fund and has raised concerns that its resources may not be sufficient to cover both insured losses and legal payouts.
Established in 2019, the fund was designed to shield California’s largest utilities from financial collapse in the wake of wildfire-related liabilities. It is funded by utility contributions and a surcharge on customer bills.
Power lines and other utility infrastructure have been tied to several of the state’s most destructive wildfires, including the 2018 Camp Fire, which killed more than 80 people. While the exact cause of the Eaton fire is still under investigation, Southern California Edison has faced scrutiny since the incident.
Industry estimates place the combined insured losses from the Eaton and nearby Palisades fires between $20 billion and $45 billion. Verisk, a risk modeling firm, projects that claims from the Eaton fire alone could reach $15.2 billion.
In council documents, officials warn that if utility equipment is confirmed as the cause, the “resulting claims may be substantial enough to fully exhaust the fund.” The fund would also be responsible for paying settlements in dozens of lawsuits filed by homeowners who lost property in the fire.
To protect the fund’s remaining capital, the council is weighing potential changes. Among them: tightening claim standards, encouraging utilities to settle quickly, and limiting payouts to what it defines as “reasonable claims.”
The council is also seeking to reduce payouts to third parties, the report said. In a draft letter, members said they want to ensure most of the fund supports direct recovery, rather than being routed to hedge funds or legal fees. Some hedge funds have reportedly purchased subrogation rights, a legal mechanism allowing them to collect insurance proceeds and potential lawsuit awards if Edison is found liable, the report said.
The California Earthquake Authority, which administers the fund, echoed those concerns in an interview with the Los Angeles Times, warning that attorney fees could further erode available funds. Legal fees in such settlements can run as high as 50%, according to the report.
