The California Department of Insurance published a bulletin providing guidance to insurers on how to properly handle smoke damage claims resulting from wildfire.
There has been confusion due to recent court decisions on whether “direct physical loss of or damage to property” includes smoke damage. In a California Supreme Court decision, they stated that direct physical loss or damage to property required a distinct, demonstrable, physical alteration to property, and that alteration does not need to be visible to the naked eye, but must result in some injury or impairment of the property. Thus, smoke damage can be covered as “direct physical loss of or damage to property” or under a contract with similar terms.
The Department expects insurers to fully investigate smoke damage claims and settle them fairly. Insurers must comply with California Insurance Code claims settlement practices and all other laws and regulations.
An insurer must respond to a claim reasonably and promptly. It is not reasonable to deny a smoke damage claim without an investigation. Further, it is not reasonable for the insurer to require the insured to pay for the costs to investigate their own claim. If professional testing is necessary, the insurer should pay for it.
The Department is monitoring how insurance companies are handling smoke damage claims to ensure policyholders receive the benefits to which they are entitled.
The bulletin can be found here.