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Utility insurers face credit risk from wildfire liability patchwork
The 2018 Camp Fire, tied to a utility transmission failure in California, is estimated to have caused about $16.5 billion in economic and insured losses, shaping later state wildfire reforms and backstops.
A patchwork of wildfire mitigation and liability rules across western US states is creating uneven credit risk and insurance exposure for investor-owned utilities, according to a new commentary by Morningstar DBRS, published by Insurance Business.
Morningstar DBRS said frameworks that reduce cost recovery uncertainty are generally credit supportive, while approaches that leave wildfire liability outcomes ambiguous can expose utilities to uncapped financial risk. The stakes are illustrated by the 2018 Camp Fire in California, which destroyed more than 18,000 structures, killed 85 people, and produced approximately $16.5 billion in estimated economic and insured losses, the agency said.
California built out a mitigation and backstop structure with two key laws, Senate Bill 901 in 2018 and Assembly Bill 1054 in 2019, creating a legally binding wildfire mitigation plan framework, oversight by the state's Office of Energy Infrastructure Safety, and a $21 billion wildfire fund. In September 2025, California expanded the backstop with Senate Bill 254, adding an $18 billion continuation account, and Morningstar DBRS described California as the most mature jurisdiction for wildfire liability protection.
The rating agency noted there is no unified approach across states for attributing wildfire liability to utilities, and that distinction affects how insurers and risk managers assess utility counterparty exposure. It cited Arizona's 2025 law, which requires wildfire mitigation plan submissions every two years and sets liability frameworks, legal safe harbor protections, and standards of care, while saying Idaho offers stronger protection through its Wildfire Standard of Care Act, which provides a presumption for utilities that operate under approved plans.