Why Insurers Are Pushing Back on California’s Smoke Damage Bill AB 1795

March 18, 2026
Johanna Namir

Introduction

California’s AB 1795 the Smoke Damage Recovery Act has been framed by its sponsors as a “nation’s first” consumer protection bill, a landmark response to the chaos that followed the January 2025 Los Angeles wildfires. For tens of thousands of displaced homeowners, it represents long-overdue accountability for an industry that, in their view, has been slow to pay, quick to deny, and largely unaccountable.

But for insurance carriers, adjusters, brokers, and actuaries operating in what is already one of the most stressed property insurance markets in the country, AB 1795 raises a different set of questions ones that go beyond any individual claim and strike at the structural viability of writing residential property coverage in California at all.

This article presents the insurance industry’s substantive concerns about AB 1795 not as an endorsement, but as a necessary part of the policy debate.

A Market Already Under Pressure

To understand the industry’s response to AB 1795, it is essential to understand the market conditions into which this bill arrives.

In the years leading up to the January 2025 wildfires, several major insurers including State Farm, Allstate, and Farmers had already curtailed or paused new homeowner policy issuance in California, citing unsustainable wildfire exposure and the state’s regulatory constraints on rate increases.¹ The California FAIR Plan, the insurer of last resort, saw its policy count surge as private carriers retreated, raising concerns about its own solvency in the event of a catastrophic loss.²

Then came the Eaton and Palisades fires the largest urban wildfire disaster in state history, responsible for billions in insured losses and hundreds of thousands of displaced residents.³ The market strain that had been building for years became acute overnight.

It is against this backdrop that AB 1795 was introduced. And it is this backdrop that shapes every concern the insurance industry has raised about it.

The Industry’s Core Arguments Against AB 1795

1. Broadening Covered Damage Definitions Expands Insurer Liability Substantially

One of the insurance industry’s primary objections is that AB 1795 effectively broadens what insurers are legally required to cover without a corresponding adjustment to premium structures or policy terms.

The bill defines “smoke damage” as exposure to residential property “caused by wildfire smoke, combustion byproducts, and the chemicals and contaminants contained within the wildfire smoke that requires restoration of the property to preloss condition.”⁴ It further defines “restoration of the property to preloss condition” as removal of all “smoke damage residues, combustion byproducts, chemicals, contaminants, and odor caused by wildfire smoke exposure through remediation of the property, including structural elements, building systems, contents, and indoor environment.”⁵

Industry stakeholders argue these definitions are sweeping potentially requiring full environmental remediation for properties that sustained only modest smoke exposure. Critics contend this language could transform what were previously modest smoke cleanup claims into comprehensive, multi-phase environmental remediation projects, dramatically increasing per-claim costs.

2. The Rebuttable Presumption Shifts the Burden Onto Insurers

Under AB 1795, properties located within six miles of a fire perimeter are subject to a rebuttable presumption of significant smoke damage meaning the claim is automatically classified as high-impact for testing purposes, and the insurer bears the burden of proving otherwise.⁶

From an underwriting and claims-handling standpoint, this is a significant shift. It effectively presumes liability before any site-specific assessment is conducted. For a fire like the Palisades, which burned in a densely populated urban corridor, the high-impact zone could encompass hundreds of thousands of residential properties the vast majority of which may have experienced varying and highly localized levels of actual smoke infiltration.

Insurers argue that a presumption of damage at this geographic scale, absent individualized assessment, creates exposure that is difficult to price, reserve for, or manage actuarially.

3. Mandatory Testing Costs Are Borne Entirely by Insurers

The bill requires insurers to cover the cost of all sampling and testing mandated under the CalEPA guidance framework.⁷ While consumer advocates view this as a straightforward fairness provision policyholders shouldn’t have to pay to prove contamination insurers see it differently.

In a high-impact zone covering a major metropolitan wildfire, the cumulative cost of mandatory pre- and post-remediation testing for thousands of properties could be substantial. Critics note that the bill does not cap these testing costs, does not specify testing methodologies that would standardize pricing, and does not address the potential for inflated testing fees in a newly mandated market.

4. Strict Payment Timelines Create Operational Risk

AB 1795 imposes a series of mandatory payment timelines: inspection within 30 days of notice, actual cash value payment within 30 days of inspection, and replacement cost payment within 15 days of receiving a contractor’s executed contract.⁸ Late payments accrue interest.⁹

While industry observers broadly support reasonable claims-handling timelines, the concern here is one of operational scale. Following a catastrophic wildfire affecting tens of thousands of properties simultaneously, the infrastructure required to inspect, evaluate, and pay claims across an entire metropolitan area within these windows particularly given the new certification requirements the bill imposes on adjusters¹⁰ may strain even well-resourced carriers.

The risk, critics argue, is not bad-faith delay but operational incapacity and the bill’s interest accrual provisions treat both the same.

5. ALE Extension Without a Defined Endpoint

AB 1795 prohibits insurers from terminating additional living expense (ALE) benefits until the property has been cleared for habitation under CalEPA’s standards.¹¹ The problem, industry stakeholders note, is that those CalEPA standards do not yet exist  they are required to be developed by June 30, 2027.¹²

In the interim, the bill allows local agency guidance to govern but local guidance varies widely in scope and stringency.¹³ From an insurer’s perspective, this creates open-ended ALE liability with no defined termination standard, making it difficult to reserve appropriately or manage costs.

6. Market Exit Risk — The Fundamental Concern

Underlying all of these specific objections is a structural concern that transcends any single provision: if AB 1795 materially increases the cost and unpredictability of settling smoke damage claims in California, it may accelerate the retreat of private insurers from the market.

This is not a hypothetical threat. Multiple major carriers have already reduced California exposure.¹⁴ The concern is that AB 1795, however well-intentioned, adds a layer of mandated liability  with new presumptions, mandatory testing, extended ALE, and strict timelines on top of a market that is already struggling to sustain itself.

The industry’s argument, in its starkest form: a bill designed to protect wildfire survivors may ultimately leave future survivors with fewer insurers, less competition, and higher premiums or no private coverage at all.

The Counter-Arguments

In fairness to AB 1795’s proponents, the insurance industry’s market-exit warnings have been heard before in California and the market has continued to function, albeit unevenly. Critics of the industry’s position argue that:

  • The “market exit” concern is frequently invoked to oppose consumer protections regardless of their actual impact.
  • The regulatory gap AB 1795 addresses is real and documented the current patchwork of claims handling has itself generated massive litigation costs that ultimately affect market stability.
  • Standardized testing requirements may actually reduce claims disputes and litigation, lowering total costs over time.
  • The ALE provisions align with standards already required under existing law for state-of-emergency losses.¹⁵

What Industry Professionals Should Watch

For insurance professionals tracking AB 1795, the key inflection points are:

  • Committee hearings: The bill became eligible for committee hearing as of March 13, 2026. Industry testimony at these hearings will shape amendments.
  • CalEPA standard-setting: The ultimate cost and scope of the bill hinges on what standards CalEPA develops by June 2027. Industry participation in that rulemaking process will be critical.
  • Adjuster certification requirements: The Department of Insurance must develop training and certification programs for adjusters by January 1, 2028.¹⁶ Carriers should begin assessing workforce readiness now.
  • FAIR Plan exposure: If private carriers continue to exit, FAIR Plan exposure to smoke damage claims under AB 1795 standards becomes a systemic solvency question.

Conclusion

AB 1795 presents the California insurance industry with a genuine dilemma: oppose consumer protections that address documented failures in claims handling, or accept new mandates that could compound an already unsustainable cost structure.

Neither position is comfortable, and the debate is unlikely to be resolved cleanly. What is certain is that the bill will reshape the economics of wildfire smoke damage claims in California and industry professionals who understand its provisions, its presumptions, and its operational demands will be better positioned to navigate what comes next.

Citations

  1. Legislative findings, AB 1795 § 2(a)(1)–(3): Context of widespread wildfire damage and insurance claim disputes following January 2025 LA wildfires. See also AB 1795 § 2(a)(9): Insurance Commissioner Lara’s direction to establish a Smoke Claims and Remediation Task Force in June 2025.
  2. AB 1795 § 2(a)(3): DOI executive actions including legal action against the California FAIR Plan over failure to handle smoke damage claims.
  3. AB 1795 § 2(a)(1): “The Eaton Fire and Palisades Fire in January 2025 that damaged and destroyed thousands of homes and businesses.”
  4. AB 1795 § 3, Health & Safety Code § 25405(g)(7): Statutory definition of “smoke damage.”
  5. AB 1795 § 3, Health & Safety Code § 25405(g)(6): Statutory definition of “restoration of the property to preloss condition.”
  6. AB 1795 § 6, Insurance Code § 2060.2(d)(1): Rebuttable presumption of significant smoke damage exposure for high-impact zone properties.
  7. AB 1795 § 6, Insurance Code § 2060.2(d): Insurer responsibility for cost of required sampling and testing.
  8. AB 1795 § 6, Insurance Code § 2060.2(f)(1)–(3): Mandatory 30-day inspection, 30-day ACV payment, and 15-day replacement cost payment timelines.
  9. AB 1795 § 6, Insurance Code § 2060.2(f)(4): Interest accrual on late payments pursuant to Section 2057.
  10. AB 1795 § 7, adding Insurance Code § 14048(a): DOI required to develop adjuster training and certification program by January 1, 2028.
  11. AB 1795 § 5, adding Insurance Code § 2060.1(a): Prohibition on ALE termination until property is cleared for habitation.
  12. AB 1795 § 3, Health & Safety Code § 25405(a): CalEPA standards due “on or before June 30, 2027.”
  13. AB 1795 § 6, Insurance Code § 2060.2(b)–(c): Local and state agency guidance applies in the interim, prior to CalEPA statewide standards.
  14. AB 1795 § 2(a)(7): Legislative finding that “the extent to which insurance companies are covering the remediation and restoration of properties has been inconsistent.”
  15. AB 1795 § 2(a)(3): References existing law requiring DOI to investigate complaints and enforce claims obligations.
  16. AB 1795 § 7, Insurance Code § 14048(a); AB 1795 § 8, Insurance Code § 15009.2(a): Adjuster and public adjuster certification programs required by January 1, 2028.

This article presents industry-side perspectives for informational purposes and does not represent the position of this publication. For the homeowner perspective on AB 1795, see: Smoke Damage Insurance Claims in California: What AB 1795 Means for You.

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