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The question has come up wondering if smoke damage is covered for those homes that were impacted by the Los Angeles wildfires but were not damaged by the actual fires. A cloud of smoke from a fire is larger than the actual number of acres burned.

Remember that part of the reason that these wildfires spread so far so fast was the presence of the Santa Ana winds, which almost yearly come down out of the desert, toward the coast with persistently high wind speeds and strong gusts. Those winds helped spread the fires and pushed the smoke field even farther throughout the region.

So, is smoke a “peril insured against” and the answer to that question is that it depends.

Let’s start with the simplest part of the answer. Many of these homeowners will likely have a policy based on the ISO HO-3 or HO-5 homeowners policies. The primary difference between these two policies is that the HO-3 covers personal property (Coverage C) on a named perils basis while the HO-5 provides special coverage for all covered property. The question still remains whether or not there is coverage for smoke damage. We will pull wording from the most current ISO HO-3 policy:

We insure against direct physical loss to property described in Coverages A and B. (Note: The HO-5 includes Coverage C here.)

Without an examination of the excluded perils, it would appear that smoke damage is covered and in truth, there is a smoke-related exclusion, but that doesn’t apply. Here’s how it reads:

Smoke from agricultural smudging or industrial operations;

Whether we agree that smoke is (or is not) excluded, we should be able to agree that an out of control wildfire is neither agricultural smudging or industrial, so that exclusion would not apply.

The one problem might be whether or not direct physical loss to property happened because that phrase is not specifically defined within the policy, so we would generally turn to a common definition of “direct physical loss to property,” except that this happened in California, and that state has defined “direct physical loss to property.”

Defining ‘Direct Physical Loss to Property’

In Another Planet Entertainment, LLC v. Vigilant Ins. Co. (2024) 15 Cal.5th 1106, 1117 (Another Planet), the California Supreme Court defined what it considers “direct physical loss to property,” writing:

“Under California law, direct physical loss or damage to property requires a distinct, demonstrable, physical alterations to property. The physical alteration need not be visible to the naked eye, nor must it be structural, but it must result in some injury to or impairment of the property as property.”

The question of coverage for smoke damage is often simple because it’s tied directly to fire damage, which is also tied to water damage. One result of a fire is smoke, so if a fire starts in someone’s home, there will be coverage for that smoke damage. The smoke damage could be as small as a nearby wall with smoke stains and odor. It could be as large as several items of personal property that have to be cleaned, or replaced, due to the presence of smoke.

But we are concerned with smoke that enters the dwelling from a fire that happened several miles from the home. Is there coverage then? This is where we pull in that definition of direct physical loss to property. If we apply that as we see it, it is possible that an insurance company could find that there was no direct physical loss to property.

Distinct, Demonstrable, Physical Alteration

If we are claiming that smoke caused damage to property, we have to first determine whether or not there was a distinct, demonstrable, physical alteration of that property. This seems simple enough. The smoke entered the dwelling and because it did, it left behind an odor, a discoloration or both. This is a distinct, demonstrable, physical alteration. The court told us that the alteration did not have to be visible with the naked eye, but in many cases, smoke damage will leave behind its mark on the surface of the property.

It also told us that the alteration does not have to be structural, which is also helpful since it seems unlikely that smoke (of itself) could cause structural damage to any kind of property. When we think of structural damage related to fire, we generally think of the heat produced by the fire, or the chemical reaction that is the fire, not the smoke that comes from it.

Must Result in Some Injury to Or Impairment of the Property as Property

If we separate the smoke from the fire and note that the fire did not directly damage the dwelling or any personal property, we are left to decide whether or not smoke damage by itself can cause injury or impairment of the property and that’s a little more difficult.

Going back to what we’ve already stated about the damage that smoke does, we are left to define that damage as the potential of discoloration, odor or both. Can we call discoloration or odor injury to the property? Yes, but does it rise to the level of impairing the “property as property?” That’s where we might have a dispute.

Let’s look at it as the homeowner. You’ve left your home for a couple of days. Maybe it’s because the wildfire is heading your direction, or maybe you were just planning a long weekend in San Diego. When we get to the house, we might have some signs that the smoke made it this far, but when we walk in, that’s when the smell becomes obvious. For me, it’s noticeable, but I won’t be able to smell it in a few minutes. When my wife walks in, she will barely be able to breathe and she’ll never be able to ignore the smoke smell.

So what do we do? The first thing that we do is attempt to clean things. If it has a hint of smoke smell, it gets cleaned until my whole house smells of our favorite cleaners. Then the air conditioner kicks on and the whole place smells like smoke again. Now what? We call the local HVAC company, or maybe a remediation contractor, both of which would be able to clean my HVAC system and replace my filters so that we don’t smell the smoke anymore.

But Was There Damage?

You could make the point that when we discovered the smoke smell, we immediately incurred a cost in money and time because we either used cleaning supplies that needed to be replaced, or we went and bought cleaning supplies, then we hired the cleaning contractor to finish the job. Those all have costs associated with them, including the use of our time in cleaning up, making phone calls and generally being stressed about the smell of smoke.

Was there damage though? The fact that the property smelled bad, and I wanted it clean doesn’t mean that it was actually damaged. If my HVAC blew air that smelled of smoke, that doesn’t mean that it isn’t working the way it’s supposed to be. Let’s look at it from another direction, what if the smoke damage couldn’t be easily remediated by cleaning or replacing filters?

If the adjuster decides that a simple cleaning doesn’t rise to the level of injury or impairment of the property as property, does the need to dispose of property and replace it because the smoke smell doesn’t come out make the property actually damaged? That may be where the insured ultimately finds coverage for property damage due to smoke because they have to go beyond a “simple cleaning.” It could be that the smoke damage inside the house requires repainting to cover the odor completely.

On the face of it, this seems like an easy question to answer, but the complications will come from the details of each claim and the volume of claims that companies will deal with. In the end, we may not know for another few years whether or not the kind of smoke damage that we’re talking about with these fires will be covered.

Wraight heads Ãå±±ÂÖ¼é’s Academy of Insurance. He began his insurance career as a commercial underwriter for an MGA, focusing on niche markets like fire departments, ambulance companies and home medical equipment dealers. He has written numerous articles for Ãå±±ÂÖ¼é and My New Markets and is the co-author of Risk-Proof Your Business – The Complete Guide to Smart Insurance Choices.

Topics Catastrophe Natural Disasters Wildfire Louisiana