California Legislature Rejects Gov. Newsom's Plan to Halt Insurance Subrogation for Wildfire Claims

California legislators halted Governor Gavin Newsom's proposal to end subrogation, the practice that allows insurers to recover losses from investor-owned utilities after paying wildfire claims. The decision came after a closed-door meeting between the governor's staff and Democratic lawmakers on a wildfire-liability working group, where negotiations broke down late Thursday.

Newsom had sought to shift some wildfire-related costs from utilities to insurers as part of a broader effort to limit the financial exposure of the state's three investor-owned utilities. He argued that the move was intended to protect the state's wildfire liability fund, which is financed by ratepayers and shareholders, and to avoid potential bankruptcy of the utilities.

Insurance company executives warned that eliminating subrogation could lead to higher premiums and destabilize the state's insurance market. In response, the governor's office offered a phased approach to ending subrogation, but the proposal did not gain sufficient support in the State Senate.

Legislators face a deadline to incorporate any wildfire-liability changes into a bill before the legislative session ends on August 31. A memo obtained by KCRA 3 indicated that the governor's office recognized there was no viable path to pursue broader structural reforms while containing costs. The memo outlined remaining initiatives, including prohibiting utility CEOs from receiving bonuses if a wildfire occurs, creating a fast-pay program for victims, developing a statewide community wildfire strategy, establishing a data-sharing platform, and banning speculative investing in wildfire claims by hedge funds and private-equity firms.

All other pending issues were set aside, according to the memo.