Key Takeaways
- • Hedge funds are increasing purchases of subrogation claims tied to the 2025 Los Angeles wildfires, encouraged by a slowdown in California legislative efforts to restrict such investments, according to Bloomberg.
- • Claims are trading at steep discounts, from as little as three cents on the dollar for some Palisades fire claims to around 60 cents for Eaton fire claims, per transactions reviewed by Bloomberg.
- • The Eaton and Palisades fires generated an estimated $40bn in insured losses, and disputes over responsibility remain unresolved nearly two years later.
- • Many targeting funds reportedly seek low-to-mid-teens returns, though the market remains opaque because of political sensitivity.
- • Southern California Edison reported about 2,000 Eaton fire lawsuits involving roughly 32,000 plaintiffs as of July, with a bellwether jury trial scheduled for January 2027.
Summary
Hedge funds are increasing their purchases of legal claims linked to the 2025 Los Angeles wildfires, according to a report by Bloomberg. The buying has been encouraged by a slowdown in California lawmakers' efforts to restrict investors from acquiring rights to insurance recoveries. Investors are acquiring the claims at steep discounts, with prices ranging from as little as three cents on the dollar for some Palisades fire-related claims to around 60 cents for claims linked to the Eaton fire, based on transactions Bloomberg reviewed. The investments offer funds the prospect of attractive returns if they can recover more than their initial outlay through later legal settlements.
The Eaton and Palisades fires, which devastated parts of Los Angeles in early 2025, generated an estimated $40bn in insured losses. Disputes over responsibility for those costs remain unresolved, and claims are expected to take years to work through the legal system. Subrogation allows insurers to pursue compensation from third parties, including utilities suspected of causing wildfires. Rather than wait for lengthy litigation, insurers can sell those rights to investors at a discount for immediate cash, with buyers assuming the associated legal and recovery risks. Many hedge funds targeting the market are reportedly seeking returns in the low-to-mid teens.
California politicians had sought to curb the market amid criticism that alternative asset managers were profiting from a disaster. Legislation introduced in 2025 requires insurers to give utilities a right of first refusal before selling subrogation claims to third parties, but it stopped short of prohibiting investor purchases. A legislative impasse has eased investor concerns about a broader ban. Willis Hon, an attorney at Nossaman, told Bloomberg that the failure to remove subrogation claims entirely from the market would reassure hedge fund managers. The California Earthquake Authority, which administers the California Wildfire Fund, previously criticised such investments as opportunistic attempts to profit from a social and environmental catastrophe.
The insurance industry maintains the legislation has not changed its approach. Denni Ritter, vice president of state government relations at the American Property Casualty Insurance Association, said insurers would continue paying policyholders and pursuing recoveries from utilities deemed responsible. One market participant, identified as Max, said the right-of-first-refusal requirement had so far made little difference to investor demand and that he had not lost any transactions because of it. He also questioned whether utilities or government bodies had sufficient resources to buy the claims themselves. The market remains relatively opaque, with participants often reluctant to disclose transaction details or identify buyers and sellers.
California's legal framework, including the doctrine of inverse condemnation, allows utilities to be held liable for property damage caused by their infrastructure without establishing negligence in the usual way. This has contributed to lengthy disputes between utilities seeking to limit costs passed to customers and insurers seeking recoveries. Southern California Edison said it was aware of approximately 2,000 lawsuits related to the Eaton fire as of July, involving around 32,000 individual plaintiffs, alongside claims from insurers and public entities. A bellwether jury trial in the Eaton fire litigation is scheduled for January 2027.
The Eaton and Palisades fires, which devastated parts of Los Angeles in early 2025, generated an estimated $40bn in insured losses. Disputes over responsibility for those costs remain unresolved, and claims are expected to take years to work through the legal system. Subrogation allows insurers to pursue compensation from third parties, including utilities suspected of causing wildfires. Rather than wait for lengthy litigation, insurers can sell those rights to investors at a discount for immediate cash, with buyers assuming the associated legal and recovery risks. Many hedge funds targeting the market are reportedly seeking returns in the low-to-mid teens.
California politicians had sought to curb the market amid criticism that alternative asset managers were profiting from a disaster. Legislation introduced in 2025 requires insurers to give utilities a right of first refusal before selling subrogation claims to third parties, but it stopped short of prohibiting investor purchases. A legislative impasse has eased investor concerns about a broader ban. Willis Hon, an attorney at Nossaman, told Bloomberg that the failure to remove subrogation claims entirely from the market would reassure hedge fund managers. The California Earthquake Authority, which administers the California Wildfire Fund, previously criticised such investments as opportunistic attempts to profit from a social and environmental catastrophe.
The insurance industry maintains the legislation has not changed its approach. Denni Ritter, vice president of state government relations at the American Property Casualty Insurance Association, said insurers would continue paying policyholders and pursuing recoveries from utilities deemed responsible. One market participant, identified as Max, said the right-of-first-refusal requirement had so far made little difference to investor demand and that he had not lost any transactions because of it. He also questioned whether utilities or government bodies had sufficient resources to buy the claims themselves. The market remains relatively opaque, with participants often reluctant to disclose transaction details or identify buyers and sellers.
California's legal framework, including the doctrine of inverse condemnation, allows utilities to be held liable for property damage caused by their infrastructure without establishing negligence in the usual way. This has contributed to lengthy disputes between utilities seeking to limit costs passed to customers and insurers seeking recoveries. Southern California Edison said it was aware of approximately 2,000 lawsuits related to the Eaton fire as of July, involving around 32,000 individual plaintiffs, alongside claims from insurers and public entities. A bellwether jury trial in the Eaton fire litigation is scheduled for January 2027.
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