Arizona Insurance Industry Raises Concerns Over Wildfire Liability Bill
Representatives from the insurance industry are voicing concerns regarding proposed legislation in Arizona that would limit the liability of utility companies for damages caused by wildfires. The bill also mandates the creation of risk mitigation plans by power providers.
The proposed legislation would require utilities to develop comprehensive plans. These plans would pinpoint areas with heightened wildfire risks, outline protocols for de-energization, establish vegetation management strategies, and implement other fire prevention measures. Furthermore, the bill aims to set a higher standard of proof for wildfire-related lawsuits against utilities, stipulating that claims must be substantiated with clear and convincing evidence. Any legal action would be restricted to damages directly resulting from a wildfire, excluding claims for consequential property damage, punitive damages, and bodily injury.
Under the proposed legislation, utilities that adhere to their risk mitigation plans would be considered to have met a standard of care. Consequently, they would not be held responsible for wildfires caused by factors outside their control or right-of-way.
Arizona insurers caution against shielding utilities from certain wildfire liabilities
Wildfire Activity in Arizona
Arizona has witnessed a substantial uptick in wildfire activity recently, sparking discussions concerning insurance coverage and legal challenges faced by utility companies. Data from the Arizona Department of Forestry and Fire Management reveals a fluctuating, yet concerning, trend in wildfire occurrences. In 2023 alone, the state recorded 1,659 wildfires, resulting in the burning of 176,939 acres.
The proposal emerges at a time when segments of Arizona’s rural insurance market are already under pressure, according to Marcus Osborn, a contract lobbyist and senior director of government relations at Kutak Rock LLP. Osborn suggested the legislation could exacerbate the challenges faced by the market, highlighting concerns about the potential for utility-caused wildfires in Arizona. He stated that broad liability protections for utilities might create significant issues.
In specific regions, regulatory frameworks restrict insurers’ ability to adjust premiums to reflect the heightened risks associated with wildfires. For instance, Proposition 103 in California imposes limitations on rate increases, making it difficult for insurers to maintain profitability amidst escalating risks. This situation has prompted some insurers to seek substantial rate hikes or withdraw from high-risk markets altogether.
Osborn also pointed out that, if utilities are shielded from liability, home insurance carriers might need to adjust premiums to account for increased risk exposure. He expressed skepticism about the likelihood of the required risk mitigation plans actually improving safety, while also raising concerns about the scope of liability immunity granted to utilities.
