Wall Street brokers are now selling claims from insurers related to the deadly wildfires in Los Angeles. These claims may lead to payouts from the utilities that are being held responsible for the destruction. Investors are purchasing what are called subrogation claims, which give them the right to seek compensation from utility companies if they are found liable for the fire damage. This process helps insurance companies recover some of their losses after disasters.
Recently, investment firm Oppenheimer & Co. made headlines by executing the first trade of these subrogation claims linked to the Eaton Fire or the Palisades Fire. They have continued to broker additional claims since then. Cherokee Acquisition, an investment bank that specializes in helping insurers sell these claims, has been very active in this area, particularly with claims related to the Eaton Fire.
The January wildfires were among the most destructive in California’s history, resulting in at least 29 deaths and widespread destruction in Los Angeles County. Over 37,000 fire-related insurance claims have been filed, with payouts exceeding $12 billion, according to the California Department of Insurance.
Residents affected by the fires have primarily targeted two companies in their lawsuits: Edison International Inc., the electricity supplier, and the Los Angeles Department of Water and Power (LADWP), a municipal utility. Allegations against LADWP include failing to provide enough water to combat the Palisades Fire, while property owners claim that Edison’s equipment caused the Eaton Fire. However, it remains uncertain whether these claims will result in actual payouts. California law makes it relatively easy to hold utilities accountable for fire damage, but investigations into the causes of these wildfires are ongoing and could take months.
Historically, subrogation claims have been linked to other California wildfires. For instance, the Baupost Group, led by investor Seth Klarman, purchased claims against PG&E Corp. following fires in 2017. They acquired $1 billion worth of claims for about 35 cents on the dollar and later negotiated a settlement that garnered them significant returns. This led to criticism from wildfire victims, who felt that the settlement favored wealthy hedge funds over those who suffered losses.
In addition to the Los Angeles fires, some claims from the recent deadly wildfires in Maui have also been sold to investors, with deals totaling over $77 million.
As the investigation continues and the legal process unfolds, the fate of these claims and the potential for payouts remains uncertain. The situation highlights the complex relationship between insurance, investment, and the consequences of natural disasters.