California Rejects Newsom Bid to Curb Wildfire Insurer Payouts

A Fight Over Who Pays for California's Wildfires

In the closing days of California's legislative session, Gov. Gavin Newsom tried to push through the biggest rewrite of the state's wildfire liability system in years — and Democratic lawmakers largely said no. The result, a compromise measure known as Senate Bill 492, preserves insurance companies' right to sue utilities to recover wildfire claim payouts, rejecting one of the governor's central asks and handing him what several outlets described as a rare political defeat in the final legislative session of his tenure 11112.

At stake was who absorbs the enormous costs generated when investor-owned utility equipment sparks a catastrophic fire. Newsom's original proposal sought to limit or eliminate "subrogation," the legal process that allows insurers who pay policyholders' wildfire claims to then recoup those costs from the utility responsible for starting the blaze 161719. He also wanted to cap some survivors' pain-and-suffering damages, including a proposed $150,000-per-person limit for people who evacuated but were not injured or bereaved, and to limit how much local governments could recover for destroyed public infrastructure 89. Lawmakers in both the Assembly and Senate rejected those core provisions 1013.

Why Newsom Wanted Change

Newsom's team argued the state's current system was becoming untenable. California's inverse-condemnation doctrine holds utilities financially responsible for wildfire property damage even without proof of negligence, a stricter standard than most other states 1617. That exposure, combined with a wave of massive claims, threatened to overwhelm the state's Wildfire Fund — an $18 billion pool created after PG&E's 2019 bankruptcy and financed equally by utility shareholders and ratepayers 613. Newsom warned that another catastrophic fire could drain the fund, jeopardize utilities' financial stability, raise borrowing costs and ultimately push electricity bills higher for everyone 69.

The stakes were sharpened by the January 2025 Eaton and Palisades fires, which together generated roughly $41 billion in insured losses — the costliest wildfires on record globally, according to Aon — with the Eaton Fire alone killing 19 people and destroying more than 9,000 structures in Altadena 61520. Southern California Edison equipment has been cited as the cause of the Eaton Fire; the utility denies wrongdoing but faces thousands of survivor claims 1115.

Lawmakers Push Back

Democratic legislative leaders, however, refused to shift costs from utilities onto insurers, survivors and local governments. The Senate's plan left subrogation largely intact, while the Assembly rejected both the survivor-payout limits and the insurer-recovery restrictions 1011. Assembly Natural Resources Committee Chair Isaac Bryan said lawmakers wanted to avoid treating survivor justice and grid stability as competing priorities, while Sen. Ben Allen warned that killing subrogation to fix high electricity rates could simply create a new problem of higher insurance rates 810.

As the Aug. 31 deadline approached, Newsom's office reportedly floated increasingly narrow fallback options — phasing out subrogation over time, then capping insurer recoveries at 50%, and finally proposing a 20-cents-on-the-dollar limit — but lawmakers would not accept any version, according to multiple accounts of the closed-door talks 1213. No bill language containing a subrogation limit was ultimately introduced 13.

Opposition came from an unusually broad coalition: insurers, trial lawyers, consumer advocates, local governments and, most visibly, wildfire survivors. Groups such as the Every Fire Survivors Network staged protests outside the governor's mansion and rallies at the Capitol, arguing the plan amounted to a utility bailout that would deny compensation to legitimate victims based on arbitrary distinctions like a fire's geographic "perimeter" 8911. Insurance trade groups, represented by the American Property Casualty Insurance Association, warned that eliminating subrogation could raise statewide homeowners' premiums by 10% to 20%, an estimate the association has not made fully public in methodology 111819.

What SB 492 Actually Does

The compromise bill, authored by Sen. Josh Becker and Assemblymember Cottie Petrie-Norris, leaves the fundamental liability framework largely untouched but adds new consumer protections and administrative reforms 1415. It creates a California Wildfire Relief Fast-Pay Program intended to speed payments to survivors of future utility-caused fires, with claim-validity determinations required within 60 days and settlement offers within 30 days after that; survivors who reject a fast-pay offer retain the right to pursue litigation 67.

The bill bars private equity groups from buying, funding or profiting from wildfire claims, restricts unsolicited attorney solicitation of survivors for 30 days after a disaster, and caps attorneys' fees in insurer-subrogation cases at 10% of any settlement 71415. It also strengthens utility executive accountability by requiring forfeiture of short-term incentive pay for CEOs and other executives in years their companies cause a fatal catastrophic wildfire, and it authorizes additional bond financing to help keep the Wildfire Fund solvent 71015. Because the deal was finalized after the normal bill-publishing deadline, it was introduced as an urgency measure requiring a two-thirds vote from both chambers 1415.

What the bill does not do is change utilities' underlying liability exposure or resolve the long-term financing question for the Wildfire Fund 1719. Newsom acknowledged as much, calling the deal a partial step and urging lawmakers to pursue "full structural reform" next year to stabilize electricity rates and keep fire victims from becoming "unsecured creditors" if a utility were to go bankrupt again 61314.

Reactions Split Along Familiar Lines

Senate President Pro Tem Monique Limón and Petrie-Norris framed the outcome as a win for survivors and a check on Wall Street profiteering from disaster claims 615. Survivor advocate Joy Chen praised lawmakers for resisting what she called extraordinary pressure from powerful interests 6. The insurance industry, through APCIA representative Denni Ritter, welcomed the outcome as preserving affordability and market stability 19. Utilities were less pleased: PG&E publicly criticized the final measure as inadequate to address the financing risks utilities face and warned it would not give investors the long-term assurances needed to attract affordable capital 12.

Former California Insurance Commissioner Dave Jones argued that keeping liability with utilities preserves their incentive to invest in grid safety and vegetation management, whereas shifting costs to insurers would ultimately burden policyholders and taxpayers instead 14.

A Broader Insurance Market Already Under Strain

The subrogation fight unfolded against a backdrop of a California property-insurance market already buckling under wildfire risk. The FAIR Plan, the state's insurer of last resort, has seen enrollment in fire-prone areas roughly double in recent years and recently secured a 29.1% average rate increase after initially seeking an even larger hike. The Palisades and Eaton fires alone generated thousands of FAIR Plan claims and billions in payouts, illustrating how insurers' exposure and pricing pressures are mounting regardless of how the subrogation question is resolved.

For now, insurers retain their recovery rights, survivors keep uncapped access to noneconomic damages, and the harder question — how California should permanently divide the costs of utility-sparked megafires among shareholders, ratepayers, insurers and taxpayers — remains unresolved heading into a new legislative session and a new governor.