In Gharibian v. Wawanesa General Insurance Company (2025) 329 Cal.Rptr.3d 574, the California Court of Appeal, Second District, recently held that wildfire debris did not qualify as “direct physical loss to property” such as to trigger the protections of the insurance policy at issue in the case.
As a result of the Saddle Ridge wildfire that began in the foothills of northern Los Angeles County on October 10, 2019, debris entered the plaintiffs’ home and landed on other parts of their insured property. However, the property did not suffer any burn damage, and any smell of wildfire smoke had completely dissipated by the end of the year. The plaintiffs reported a claim to their property insurer Wawanesa, which in turn retained a contractor to determine the extent of cleaning to be conducted. After the parties hired separate hygienists to inspect the property, Wawanesa paid the plaintiffs a sum representing the cleaning contractor’s estimate minus the policy deductible. The plaintiffs cleaned the property on their own (including general cleaning, interior painting, exterior wood/stucco painting, attic insulation replacement, swimming pool work, and HVAC system cleaning) and obtained an estimate of the cost of doing so. In response, Wawanesa re-inspected the property and, as a concession to the plaintiffs, revised its estimate to include disputed cleaning services and provided an additional amount to cover pool cleaning (though not in the total amount estimated by the plaintiffs). The plaintiffs ultimately filed a lawsuit in California state court, alleging causes of action for breach of contract and breach of the duty of good faith and fair dealing against Wawanesa.
Wawanesa moved for summary judgment against the plaintiffs, arguing that the latter had failed their burden of proving the claimed loss fell within the relevant policy’s scope of coverage, with “no evidence of a physical loss.” (Gharibian, 329 Cal.Rptr.3d at 577.) The plaintiffs opposed. (Id. at 578.) The trial court ultimately ruled in Wawanesa’s favor on the grounds set forth in the insurer’s moving papers, a ruling which the plaintiffs appealed. (Id.)
On appeal, the Court acknowledged that “[w]hile insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply,” and thus insurance policy language is to be interpreted “in [its] ordinary and popular sense, unless used by the parties in a technical sense or a special meaning is given to them by usage,” and “in context” (Id. at 579 [internal quotations and citations omitted].) The burden of proof rests on the insured to demonstrate that a claim falls within the scope of coverage, with courts refusing to “indulge in a forced construction of the policy’s insuring clause to bring a claim within the policy’s coverage.” (Id. [internal quotations and citations omitted].)
Recognizing that under California law, direct physical loss or damage to property requires a “distinct, demonstrable, physical alteration to property” that “need not be visible to the naked eye, nor . . . be structural,” but “must result in some injury to or impairment of the property as property,” the Court found “no evidence of any direct physical loss to [plaintiffs’] property” because the wildfire debris in question did not “alter the property itself in a lasting and persistent manner” and instead was “easily cleaned or removed from the property.” (Id. [internal quotations and citations omitted].) In doing so, the Court confirmed “[t]he long-standing California view that direct physical loss to property requires a distinct, demonstrable, physical alteration of property.” (Id. at 580 [emphasis added].) The Court went on to emphasize that “[n]othing in this analysis or conclusion suggests that it is limited to claims related to COVID-19,” confirming the broad applicability of the California Supreme Court’s holding in Another Planet Entertainment, LLC v. Vigilant Ins. Co. (2024) 15 Cal.5th 1106. (Gharibian, 329 Cal.Rptr.3d at 580.)
Notably for insurance practitioners, the Court drew a distinction between situations involving first- and third-party liability coverage, with the latter being “wholly different” from the former. (Id. [internal quotations and citations omitted].) The Court also highlighted the irrelevance of Wawanesa’s payments to the plaintiffs regardless of coverage, recognizing that “[b]ecause insurance companies often adjust claims for reasons entirely unrelated to their merits, [the insurance company’s] decision to pay money to the [insureds] may not be construed either as an admission of liability or as the substantive equivalent of accepting its obligations under the policy.” (Id. at 581 [internal quotations and citations omitted].)
The Gharibian court ultimately affirmed the lower court’s judgment in Wawanesa’s favor and found the insurer entitled to costs on appeal. As California addresses the consequences of wildfires, knowledge of controlling case law, including but not limited to the Court’s opinion in Gharibian, is crucial for effectively evaluating loss claims and related coverage matters.