The seven-member California Catastrophe Response Council is expected to meet Thursday to discuss damage claims from the devastating Eaton fire and the growing concern that those claims could wipe out the $21 billion fund created by the state to shield utilities from the cost of wildfires sparked by electric lines.
If South California Edison’s equipment is found responsible for starting the Jan. 7 fire, which killed 19 people and destroyed more than 9,000 homes, “the resulting claims may be substantial enough to fully exhaust the Fund,” state officials who administer the fund wrote in a draft annual report to the California legislature.
There have been worries that if Edison is found liable, it would have little incentive to contain damage claims since the utility itself would be spared from covering most of the associated costs, the Los Angeles Times reported Wednesday.
Basically, the utility would pay the claims and then recoup the costs from the wildfire fund.
“Are we impressing on the utilities that they need to settle claims with diligence?” a councilmember wrote in meeting materials released ahead of Thursday’s face-to-face. “Since the claims they settle are just passed on to us, they don’t have the incentive to keep claims low.”
State documents show that costs in insured property losses alone could surpass $15 billion. That amount doesn’t cover uninsured losses or wrongful-death claims, which will likely pile up.
A March study by the University of California, Los Angeles, estimated insured losses from the fire could hit $45 billion.
The study also found that the fires accounted for a 0.48% decline in county-level GDP for 2025 and a total wage loss of $297 million for local businesses and employees in affected areas. It also stressed that without substantial and effective wildfire mitigation efforts and investments, Californians will face higher insurance premiums and that the housing market in Los Angeles, particularly for rental units, will become increasingly unaffordable.
California’s handling of the Eaton fires has been abysmal at best and threatens to defund the very insurance policy lawmakers created to prevent such an occurrence.
On top of that, hedge funds are swooping in to buy possible insurance claims tied to the fire, which has also rattled state officials and raised ethical concerns about profiting from catastrophes.
The investors are targeting so-called subrogation claims, a process in which an insurance company assumes the legal right to seek repayment from the third party responsible for the damage after paying a policyholder for a loss.
In the Eaton fire case, hedge funds are trying to buy claims and then use the legal rights insurers hold to seek reimbursement from Edison if the utility is found liable for sparking the January blaze. Recovering subrogation claims is often expensive and time-consuming, prompting insurers to sell them off in return for immediate cash payments. While the solicitations are legal, they’ve drawn sharp criticism from state leaders.
For insurers, selling the claims, often at deep discounts, allows them to recoup at least some of the billions already paid to policyholders. For hedge funds, it’s a bit riskier. They will be able to make money only if Edison is found liable. But if Edison is found to be at fault, they would hit paydirt.
California officials argue they have a stake in the deals because of their possible effect on the state’s wildfire fund, which has about $21 billion.
California law requires the state wildfire fund to reimburse Edison for insurers’ payments to policyholders if electrical equipment caused the fire. The wildfire fund was created in 2019 to protect the state’s for-profit utilities, including Edison, from bankruptcy if their equipment starts destructive wildfires.
If Edison is found liable, it could wipe out the fund and be forced to pay “hundreds of millions, if not billions” more than if the claims were settled directly by investors, the Los Angeles Times reported.
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“That would really, very negatively impact the durability of the wildfire fund,” Tom Welsh, CEO of the California Earthquake Authority, which oversees the state’s wildfire fund, said.
He added that brokers at Oppenheimer & Co. in New York had informed him that they were trading 10 subrogation claims worth more than $1 billion in recovery rights.