Your Home Is Gone. Your Insurer Paid Less Than It Cost to Rebuild. And No One Told You About This.
When the Palisades and Eaton fires tore through Los Angeles in January 2025, they destroyed more than 16,000 structures, killed at least 31 people, and left thousands of families facing the most disorienting kind of financial loss: the kind where the numbers never quite add up.
Insurance companies underpay. Depreciation schedules reduce settlements. Policy limits fall short of actual replacement costs. And the process of filing, waiting, documenting, and appealing takes months that displaced families often can’t afford to lose.
What most wildfire victims in California don’t know is that insurance isn’t the only avenue available. Under Article I, Section 19 of the California Constitution, if a utility company’s equipment started or spread the fire that destroyed a property, the owner may have a constitutional right to compensation that exists entirely independently of any insurance policy. Proof of carelessness or safety violations is not required. What matters is whether the fire was caused by the utility’s equipment, whether that equipment was used to serve the public, and whether property was damaged as a result.
That doctrine is called inverse condemnation. In California, it is one of the most powerful legal protections available to property owners, and one of the least understood.
What Inverse Condemnation Actually Is
Inverse condemnation is a constitutional doctrine rooted in the Takings Clause of Article I, Section 19 of the California Constitution, which states that private property may not be taken or damaged for public use without just compensation being paid to the owner.
In a standard eminent domain proceeding, the government initiates a formal process to acquire property, and the law requires it to pay fair market value. Inverse condemnation flips that sequence. It applies when the government or a public utility has already damaged or effectively destroyed private property without following the formal acquisition process, and the property owner initiates the legal action to recover compensation.
The “inverse” in inverse condemnation refers to this reversal. Instead of the government arriving with a condemnation notice and a check, the property owner goes to court to compel the payment the Constitution says was owed before the property was destroyed.
What makes California’s version of this doctrine particularly significant for wildfire victims is what it does not require. Unlike a negligence claim, inverse condemnation in California does not ask whether the utility acted carelessly, followed its safety protocols, or took all reasonable precautions. The constitutional protection applies regardless of fault. If a utility’s equipment substantially caused a fire that damaged property, and that equipment was used to provide a public service, the constitutional obligation to compensate exists whether or not the utility did anything wrong.
Why Utilities Are Subject to Inverse Condemnation
The extension of inverse condemnation to investor-owned utilities is one of the features that makes California uniquely protective of property owners, and uniquely challenging for utilities.
The reasoning is grounded in the same rationale that underlies all inverse condemnation law. California applies a legal doctrine called inverse condemnation to utilities that cause wildfires. Under this rule, a utility whose equipment starts a wildfire is strictly liable for property damage even if the utility did nothing wrong. The constitutional logic is this: utilities like Southern California Edison, Pacific Gas and Electric, and the Los Angeles Department of Water and Power hold the power of eminent domain. They can condemn private land to run their transmission lines. They operate infrastructure that serves an undeniably public purpose. Because they have accepted that public role and benefit from it, California courts have held that they must also bear the financial burden when their operations cause harm to private property owners.
This principle was established through a line of California appellate decisions, beginning with Barham v. Southern California Edison Co. (1999), where the Fourth District Court of Appeal held that no rational basis exists for distinguishing privately owned utilities from publicly owned ones when it comes to inverse condemnation liability. The court reasoned that because investor-owned utilities operate under state-granted franchises, hold eminent domain authority, and provide services that are governmental in nature, they are subject to the same constitutional framework as public agencies. That principle has been consistently affirmed in subsequent cases, including Pacific Bell Telephone Co. v. Southern California Edison Co. (2012) and most recently in Simple Avo Paradise Ranch v. Southern California Edison Co. (2024).
For the LA fire victims, the practical significance is substantial. Lawsuits against Southern California Edison allege its equipment ignited the Eaton Fire. Lawsuits against LADWP allege its power lines sparked the Palisades Fire and that the utility’s failure to maintain reservoir water supply worsened the damage. Both SCE and LADWP are subject to California’s inverse condemnation doctrine. Neither can avoid liability simply by arguing it behaved reasonably.
Why This Is Different From Your Insurance Claim
Insurance and inverse condemnation protect against the same loss from different directions, and the distinction between them has a significant bearing on the scope of potential recovery.
An insurance claim is a contract. A policy defines what is covered, at what value, up to what limit. Depreciation reduces the payout. Scope disputes limit what the insurer will pay to replace. When insurance doesn’t fully cover the cost of rebuilding, the difference falls on the property owner.
An inverse condemnation claim is a constitutional right. It is not governed by a policy or capped by a premium. Under California law, a successful inverse condemnation claim entitles the property owner to just compensation, meaning compensation that restores the owner to the position they were in before the taking or damage occurred. That standard is more demanding than an insurance payout calculated on depreciated replacement cost.
There is also a practical interaction between the two that property owners in this situation often encounter. Receiving insurance proceeds does not necessarily extinguish an inverse condemnation claim. In many cases, any settlement or judgment in an inverse condemnation case may require reimbursement to the insurer for amounts it paid, through a process called subrogation. The constitutional avenue is separate from and in addition to any insurance recovery, subject to applicable subrogation rights.
The Role of the California Wildfire Fund and What SB 254 Changes
In 2019, the California legislature enacted Assembly Bill 1054, which created the California Wildfire Fund, a $21 billion insurance backstop for the state’s three largest investor-owned utilities: PG&E, Southern California Edison, and San Diego Gas and Electric. The fund was created because California’s strict liability inverse condemnation doctrine was pushing utilities toward insolvency. PG&E had already filed for bankruptcy under approximately $30 billion in wildfire liabilities. The fund was designed to allow utilities to pay claims without collapsing, while preserving property owners’ constitutional right to compensation.
The fund does not pay property owners directly. Instead, it reimburses utilities for eligible wildfire claims after the utility has already paid or committed to pay those claims and after total liabilities exceed $1 billion. For property owners, the fund’s significance is structural: it means the utilities facing claims from the LA fires are backed by a state-supported financial mechanism designed to ensure they can pay.
That framework is now under active review through two separate but related processes.
The first is the CPUC report. On January 30, 2026, the California Public Utilities Commission released its own report under Governor Newsom’s Executive Order N-34-25, providing recommendations to the Wildfire Fund Administrator on alternative structures for managing wildfire risk. That report recommended modifications to the strict liability inverse condemnation framework, including potential replacement with a negligence-based standard and caps on damages available outside of inverse condemnation.
The second is the CEA’s SB 254 Study Report. SB 254 required the California Earthquake Authority, as administrator of the Wildfire Fund, to produce its own recommendations by April 1, 2026 on new models or approaches to wildfire risk, liability, and cost-sharing. That report was released in April 2026. As analysed in the Nossaman Eminent Domain Report’s coverage of inverse condemnation reform, its most significant proposal is Option 2.2.1: the outright elimination of inverse condemnation for electric and gas utility-caused wildfires, replaced by a fault-based standard such as negligence, trespass, or nuisance. A companion option, 2.2.2, would modify the damages available outside of inverse condemnation rather than eliminate the doctrine entirely.
Neither reform has been enacted. Strict liability inverse condemnation remains the law in California today. But both reports are now before the legislature, and the question of whether California will change its inverse condemnation framework is no longer speculative.
What the Reform Proposals Would Mean for Property Owners
The proposals now before the legislature would, if enacted, fundamentally change the constitutional landscape for wildfire victims.
The most far-reaching is Option 2.2.1 from the CEA’s April 2026 report: the complete elimination of inverse condemnation for utility-caused wildfires. Under that proposal, the strict liability doctrine would be replaced by a fault-based framework, meaning property owners would need to establish negligence, trespass, or nuisance rather than relying on the constitutional no-fault standard that currently applies.
Under the existing strict liability standard, the utility’s conduct, its maintenance records, its compliance with safety standards, none of that determines whether liability exists. What matters is whether the equipment substantially caused the fire through an inherent risk of its design or operation.
Under a fault-based standard, the analysis changes entirely. A property owner would need to prove not just that the utility’s equipment started the fire, but that the utility failed to meet the applicable standard of care. That transforms the litigation. It shifts the burden. It introduces disputes over inspection records, regulatory compliance, and expert testimony about what a reasonably maintained utility system would have looked like. Many claims that would succeed under strict liability would face significantly higher hurdles under a negligence standard.
How California Courts Evaluate an Inverse Condemnation Wildfire Claim
An inverse condemnation claim based on wildfire damage is not self-executing. The constitutional right exists, but California courts apply specific legal elements that must each be established. Understanding what those elements are helps property owners and their attorneys assess whether a claim is viable.
- Utility ownership and operation of the equipment. The claim requires identification of whose infrastructure caused or contributed to the fire. In the Eaton Fire litigation, attention has focused on Southern California Edison’s transmission and distribution equipment. In the Palisades Fire litigation, claims have involved both LADWP’s power infrastructure and its water supply failures.
- Substantial causation through an inherent risk. The California Supreme Court clarified in City of Oroville v. Superior Court (2019) that causation in inverse condemnation requires more than showing the utility’s equipment was present at or near the ignition point. The damage must be substantially caused by an inherent risk associated with the deliberate design, construction, or maintenance of the public improvement. For utility transmission and distribution equipment, this standard is typically satisfied because the risk of fire ignition in high-wind conditions is an inherent characteristic of how such equipment is designed and operated. But it is a distinct legal element that must be established, not assumed.
- Public use. The equipment must have been used to serve a public purpose. For utilities, this element is typically straightforward: transmission lines, distribution poles, and water infrastructure all serve the public.
- Damage to property. The property owner’s loss must be documented: the property’s pre-fire value, the extent of destruction, and the cost of restoration or replacement.
Causation is typically the most contested element. In the LA fire litigation, investigations into the precise ignition points of the Palisades and Eaton fires are ongoing. Edison has acknowledged its equipment may have been involved in the Eaton Fire. LADWP faces allegations involving both its power lines and its failure to maintain reservoir capacity. As investigations produce findings, the evidence base for causation claims will develop.
How the Lockaway Storage Decision Connects
Inverse condemnation isn’t only a wildfire doctrine. It applies any time a government agency or public utility damages or effectively destroys private property in connection with public use, without providing just compensation.
Kassouni Law’s landmark win in Lockaway Storage v. County of Alameda is a direct illustration of this principle applied to government conduct outside the wildfire context. In that case, the California Court of Appeal unanimously upheld a finding that Alameda County had committed an unconstitutional taking by arbitrarily denying building permits for a storage facility, and awarded the property owner more than $2.7 million in compensatory damages, interest, and attorney fees. The court’s decision, which overturned Landgate v. California Coastal Commission and strengthened protections for California property owners against arbitrary government delays, demonstrates that inverse condemnation is a versatile constitutional tool.
The principles at work in Lockaway Storage apply with equal force in the wildfire context: the government or a utility operating for public use cannot impose the cost of that public use on a private property owner without constitutional accountability. The Constitutional Property Rights practice at Kassouni Law has pursued exactly that accountability across decades of litigation.
The Reform Proposals Make the Current Legal Framework Worth Understanding Now
There is a reason the current legal environment matters beyond just the LA fires specifically.
SB 254 set April 1, 2026 as the deadline for the Wildfire Fund Administrator’s report on reforming inverse condemnation. That report has now been released. The CPUC’s January 2026 report and the CEA’s April 2026 Study Report both recommend the legislature consider fundamental changes to the strict liability standard. Both reports are now before the legislature, and the question of whether California will change its inverse condemnation framework is no longer speculative.
The Nossaman Eminent Domain Report’s analysis of the CEA’s SB 254 report confirms that Option 2.2.1, the elimination of inverse condemnation for utility-caused wildfires, is one of the most significant proposals in the reform discussion. The underlying rationale being advanced by utilities and regulators is that the strict liability standard creates unsustainable financial exposure and drives up energy costs in ways that are disproportionate to the deterrence benefits.
None of that changes the current law. Strict liability remains the constitutional standard in California. But the gap between the current framework and what is being proposed is substantial, and anyone with a potential inverse condemnation claim connected to the LA fires, or to any future California wildfire, is operating in a legal environment that may look materially different in the near term than it does today.
What the Current Legal Environment Means for LA Fire Victims
For property owners whose homes, businesses, or land were destroyed in the Palisades or Eaton fires, or in any California wildfire connected to utility infrastructure, the legal context outlined above has several practical dimensions worth understanding.
The relationship between insurance and inverse condemnation is one. Insurance settles what a policy covers. Inverse condemnation is a constitutional right that exists independently of any policy. Where property owners have received insurance proceeds, a subsequent inverse condemnation claim may involve subrogation considerations, but the constitutional avenue is not extinguished by insurance recovery.
The reform timeline is another. With Option 2.2.1 now formally recommended in the CEA’s April 2026 report, the legislature has before it a specific proposal to eliminate strict liability inverse condemnation for utility-caused wildfires. If enacted, claims that could be brought under today’s no-fault constitutional standard would instead require proof of negligence. That is a materially different legal environment from the one that currently exists. The gap between those two standards is significant for any property owner with a potential claim.
The state of the cause investigations also matters. The official findings on the Eaton Fire’s ignition source and the LADWP’s role in the Palisades Fire are still developing. What official investigators conclude about which equipment caused what, and when, forms the evidentiary foundation on which causation arguments in inverse condemnation litigation are built.
The firm’s track record in inverse condemnation and property rights litigation in California reflects what principled, evidence-based advocacy on behalf of property owners can accomplish. Landmark results like Lockaway Storage were built on exactly the constitutional principles that apply to wildfire damage claims today.
Frequently Asked Questions
What is inverse condemnation and how is it different from a regular insurance claim after a wildfire?
Inverse condemnation is a constitutional doctrine under Article I, Section 19 of the California Constitution that entitles property owners to just compensation when their property is damaged by a government agency or public utility acting for a public purpose. Unlike an insurance claim, it is not governed by a contract or capped by policy limits. It creates a constitutional right to compensation that exists regardless of whether the utility was negligent. A successful inverse condemnation claim entitles the property owner to just compensation measured by the full extent of the constitutional taking, which may exceed what an insurance settlement provides.
Can I file an inverse condemnation claim against a utility company even if it wasn’t negligent?
Yes. That is the defining feature of California’s inverse condemnation doctrine. Under Article I, Section 19, a property owner does not need to prove the utility breached a duty of care, failed to maintain its equipment, or acted unreasonably. The constitutional obligation to compensate arises from the public nature of the utility’s operations and the causal connection between its equipment and the property damage. The California Supreme Court’s decision in City of Oroville v. Superior Court (2019) clarified that the causation must flow from an inherent risk associated with the public improvement’s design, construction, or maintenance, not simply from the equipment’s physical proximity. For utility transmission infrastructure and wildfire, this requirement is typically satisfied because the risk of fire ignition is inherent in how such equipment is built and operated. Whether or not the utility violated a single safety standard is a separate question that does not determine constitutional liability.
What does Article I Section 19 of the California Constitution say about property damage from wildfires?
Article I, Section 19 of the California Constitution provides that private property may not be taken or damaged for public use without just compensation being paid to the owner. California courts have interpreted the word “damaged” broadly: it covers not just formal government takings but any situation where property is damaged or destroyed in connection with a public use, including fires caused by utility infrastructure that exists to provide public services. The provision creates a constitutional floor for compensation that cannot be waived by statute and exists independently of any insurance policy or regulatory framework.
How does the California Wildfire Fund affect my right to compensation for fire damage to my property?
The California Wildfire Fund, created by AB 1054 in 2019 and expanded by SB 254 in 2025, is a $21 billion backstop that helps investor-owned utilities pay wildfire claims without filing for bankruptcy. It does not pay property owners directly. Instead, it reimburses utilities after they have paid or settled eligible claims exceeding $1 billion. For property owners, its significance is structural: the utilities facing claims from the LA fires are backed by a fund designed to ensure they can pay. The fund does not eliminate your constitutional right to compensation. It provides the financial mechanism through which that compensation may be paid.
Is inverse condemnation law in California at risk of being changed, and what would that mean for property owners?
Yes, it is actively under review. SB 254, signed into law in September 2025, required the California Wildfire Fund Administrator to submit recommendations by April 1, 2026 on potential reforms to how wildfire costs are allocated, including whether to modify or eliminate the strict liability inverse condemnation standard for utilities. The CPUC’s January 2026 report recommended the legislature consider moving toward a negligence-based standard. The CEA’s April 2026 Study Report went further, recommending the outright elimination of inverse condemnation for utility-caused wildfires under Option 2.2.1. If such a change were enacted, property owners would no longer be able to pursue compensation without proving the utility was at fault. Claims that succeed under today’s strict liability standard might face significantly higher hurdles under a negligence standard. No reform has been enacted. Strict liability remains the law in California.
This article is for informational purposes only and does not constitute legal advice. No attorney-client relationship is created by reading this content. Contact Kassouni Law for a consultation regarding your specific situation. Past results do not guarantee similar outcomes.
Property owners whose homes or land were destroyed in the LA fires or any California wildfire connected to utility infrastructure have access to a constitutional avenue to compensation that operates independently of any insurance policy. Kassouni Law has spent more than three decades litigating constitutional property rights cases exclusively on behalf of private individuals and businesses in California.
