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Things look bad with California’s ever-sooner wildfire season seemingly approaching and what’s shaping up to be a severe drought across the Western U.S.

The plague of wildfires in the past few years in California have made things tough for residents and businesses, and in the last few years, larger and more frequent wildfires have been particularly bad for utilities.

One business segment that’s getting some bad breaks are contractors that work for utilities or that work in wildfire-prone areas.

Contractors performing different classes of work in these wildfire-plagued geographies –vegetation management, utility-related work, infrastructure development – have seen rapidly accelerating insurance rates, and in some cases these businesses have been forced to decline work due to high insurance rates or a complete lack of available coverage.

That’s according to a new report from Aon, “Managing Wildfire Risk for Contractors: Lessons Learned and the Path Forward.”

The report notes that California last year saw 4.2 million worth of acres burned, roughly 10,000 structures destroyed or damaged and 31 fatalities. Economic loss from wildfires in 2020 was roughly $19 billion, according to Aon’s 2021 Weather, Climate and Catastrophe report, which shows that five Western fires each accounted for more than $1 billion in losses.

These increasing losses from wildfires have forced insurers to raise rates on homeowners and business property coverage in affected areas.

It’s pronouncedly worse in California, where wildfires have become a front-and-center issue, with utilities found to have started fires being successfully sued over and over under inverse condemnation doctrine – a legal concept that entitles property owners to compensation if their property is damaged by a public use, a rule that applies to government agencies, as well as utilities.

Pacific Gas & Electric, for example, has lost numerous lawsuits, and the Fire Victim Trust, established to pay victims of the 2015-2018 wildfires that PG&E has been blamed for starting, has received 40,000 claims questionnaires representing more than 70,000 claimants and roughly 250,000 individual claims, according to the trustee. PG&E has also seen criminal charges filed and has lately been subjected to tougher regulator oversight.

According to Jim Gloriod, CEO of Aon’s construction services group, one of the authors of the report, contractors in other Western states like Oregon and Colorado are also already facing tougher insurance environments due to wildfires. A lawsuit was filed in May on behalf of 70 landowners in Oregon’s McKenzie River Valley that seeks $103 million from Lane Electric Cooperative and Eugene Water and Electric Board for damages linked to the Holiday Farm fire, which killed one person and destroyed 430 homes.

Gloriod expects situations to occur around the country in a warmer and drier world.

“This isn’t just a California issue anymore,” Gloriod said. “This topic could get to be more widespread around the country.”

Gloriod said contractors that work for utilities are at particular risk, such as those performing vegetation management and general utility work, as are general contractors that may not be directly working a utility but are doing work in which they may theoretically be blamed for starting a fire.

Utilities have sued contractors to recover, but in most cases they have not been successful. Still, this has impacted the insurance rates and availability, as insurers for contractors have to pay defense costs, and as insurers reexamine the risks these contractors face, Gloriod said.

“The coverage is up,” he said. “The adjustment for coverage for wildfire has become charged on a rate on line basis.”

For general liability for example, contractors in years past could expect to pay a rate based on the revenues of a business, but now the charge is more related to amount of limit put up by the insurer, he said.

“It’s a dramatic shift in philosophy,” Gloriod said. “The retention levels have gone up, the rates have also gone up, and the underwriters have looked to narrow the amount of coverage. Each one of those pieces have been dramatic.”

Å˽ðÁ«´«Ã½Ó³»­ companies have attempted to introduce wildfire exclusions for exposed contractors, but the state has rejected these filings, stating that their intent is against public interest.

Gloriod is advising brokers to provide underwriters specific details around what type of work their clients are doing, what exactly the risks are related to that type of work, where the work is located and to utilize models that give a wildfire score based on certain locations.

“Understanding and communicating the details is critical,” Gloriod said.

Related:

• California Commissioner Calls on Insurers to Do More to Boost Wildfire Prep
• California Drought Emergency Expanded to Large Swath Of State
• Coalition is Letting Californians Know May is Wildfire Awareness Month

Topics Catastrophe Natural Disasters USA Liability Wildfire Contractors