{"id":4190,"date":"2026-04-15T05:45:31","date_gmt":"2026-04-15T05:45:31","guid":{"rendered":"https:\/\/www.insuracarelife.com\/blog\/california-earthquake-authority-weighs-in-on-inverse-condemnation-in-its-new-sb-254-report-nossaman-llp\/"},"modified":"2026-04-15T05:45:31","modified_gmt":"2026-04-15T05:45:31","slug":"california-earthquake-authority-weighs-in-on-inverse-condemnation-in-its-new-sb-254-report-nossaman-llp","status":"publish","type":"post","link":"https:\/\/www.insuracarelife.com\/blog\/california-earthquake-authority-weighs-in-on-inverse-condemnation-in-its-new-sb-254-report-nossaman-llp\/","title":{"rendered":"California Earthquake Authority Weighs in on Inverse Condemnation in its New SB 254 Report | Nossaman LLP"},"content":{"rendered":"
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We are closely tracking the newly released Senate Bill 254 (Becker, 2025) Study Report, prepared by the California Earthquake Authority (CEA) as Administrator of the Wildfire Fund. While the report outlines several pathways to stabilize California\u2019s insurance and energy markets, one of the most significant proposals is the recommendation to fundamentally overhaul inverse condemnation liability for utilities in California.<\/p>\n

I. The Strict Liability Standard Under Fire<\/strong><\/p>\n

In California, courts have consistently applied inverse condemnation liability \u2014rooted in Article I, Section 19 of the State Constitution\u2014to investor-owned utilities (IOUs). The underlying rationale is that because IOU facilities serve a public use, the costs of property damage resulting from their operations should be socialized and spread among ratepayers. However, as the report notes, this strict liability standard has created unsustainable financial burdens, driving up energy costs and threatening utility solvency.<\/p>\n

A. Option 2.2.1: Eliminating Inverse Condemnation<\/strong><\/p>\n

To equitably allocate catastrophe burdens, the report presents \u201cOption 2.2.1: Eliminate inverse condemnation for electric and gas utility-caused wildfires.\u201d Specifically, the report recommends proposing and sponsoring a constitutional amendment and companion implementing legislation to eliminate the application of inverse condemnation to utility-caused wildfire damages, instead reverting such claims to a fault-based liability framework (under traditional tort liability claims such as negligence).<\/p>\n

Because inverse condemnation arises out of the California Constitution, the report acknowledges that modifying this doctrine would likely require a constitutional amendment approved by voters. Such an amendment would undoubtedly face fierce litigation, but if successful, it would pivot utility liability from potential strict liability to ordinary tort principles. Plaintiffs would instead be required to prove negligence. The report argues that \u201cMoving to a negligence or fault-based standard would align California with the rest of the country, potentially improving utility credit ratings, reducing risk premiums on debt and insurance and the resulting increased costs for ratepayers.\u201d Furthermore, the report notes that \u201cinverse condemnation allows survivors to recover attorneys\u2019 fees on top of their damage award; thus, survivors would need to pay attorneys\u2019 fees out of their award if inverse condemnation were eliminated.\u201d<\/p>\n

B. Option 2.2.2: Modifying Damages<\/strong><\/p>\n

Recognizing that a fault-based standard might not entirely prevent bankruptcy-level exposure for utilities, the report also suggests \u201cOption 2.2.2: Modify the damages for which electric and gas utilities are liable outside of inverse condemnation.\u201d Under this option, the report proposes to \u201cEnact a coordinated package of liability reforms to moderate the overall scale of utility wildfire-liability exposure while protecting compensation designed to support survivor rebuilding and recovery.\u201d Key recommendations under this option include:<\/p>\n