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Wildfire liability: Proactive strategies for utilities and infrastructure

Wildfires pose liability risks for utilities. Proactive strategies, including risk assessment and crisis planning, are essential for mitigation.

04/28/2025 · 8 minute read

Wildfires in several regions across the US and Canada have led to loss of life, damage to personal and business properties, and significant business interruption. In the wake of wildfire events, utility and critical infrastructure organizations may face lawsuits and damage claims that can exceed their total liability insurance limits — even for fires that do not originate from their equipment. Considering the heightened liability risk, it is important for these organizations to reassess their wildfire mitigation strategies to enhance safety and mitigate losses. 

Wildfires can cause significant harm to individuals, communities, and increasingly, utility and critical infrastructure companies that are being held liable. As wildfire risk continues to evolve, so too does liability risk, and the ways companies can be impacted by heightened regulatory scrutiny and litigation related to fire damage. Even if their equipment is not responsible for causing or contributing to a fire event, these companies may still face significant exposure due to allegations of negligence, failure to comply with safety regulations, or inadequate risk management practices. 

The changing wildfire liability landscape necessitates a proactive approach to risk management and mitigation, as well as a thorough understanding of the legal frameworks that govern fire-related incidents. Organizations must be prepared to navigate potential claims and regulatory challenges, emphasizing the importance of robust crisis management strategies to help them protect their communities and reputation.

More broadly, these companies must acknowledge that low risk is not zero risk, and wildfire liability risk can and will change over time. Being prepared well before an incident arises is a competitive edge in this complex and dynamic environment. 

Wide-ranging impacts

The enduring impacts of wildfire — including death, injury, potential long-term adverse health implications, smoke and property damage, business interruption, environmental degradation and pollution, and declining property values — underscore the urgent need for more robust wildfire risk mitigation, management, and transfer. 

Over the last decade, wildfire suppression cost the USDA Forest Service and the Department of the Interior an average of $2.9 billion per year — and this number is only expected to rise given the continued frequency and severity of wildfires. Note that this figure only considers suppression expenditures and does not include the additional, astronomical costs which may involve significant damage to people, property, and resources. 

The growing threat of wildfire can be attributed to the effects of rapid climate change, prolonged droughts, and extreme storm events — but can be further amplified by human activities, such as:

  • Poor equipment/infrastructure maintenance
  • Improper power line insulation
  • Insufficient vegetation trimming 
  • Inadequate emergency response plans
  • Failure to shut off electricity during dangerous fire conditions
  • Property development and construction in high-risk locations

Understanding the relationship between wildfire and liability 

Defining wildfire is key to understanding how an organization may be impacted or held liable for fire incidents. This risk is more acute for those organizations — including energy and utility companies, telecommunications, infrastructure, and land management — that may be found liable for having caused or contributed to fires. 

This liability may extend to bodily and personal injury and property damage arising out of or ensuing from a wildfire, including any act, accident, event, cause, or condition that may cause or contribute to a wildfire. 

While there is not an industry standard definition for wildfire, in a basic sense, wildfire describes any sweeping and destructive conflagration in a wilderness or rural area that can also consume houses, buildings, or other structures and agricultural resources. Some definitions may expand the basic wildfire definition to include other fire incidents, such as power shutoff involvement, state of ignition, and state of spread.  It is important to understand the full scope of the definition as it may be easier to trigger the definition of wildfire or other fire incident.

From an insurance perspective, utilities and critical infrastructure companies may struggle to secure coverage with reasonable terms, conditions, and pricing. Some states and regions are adopting unique and often strict wildfire liability conditions while some insurers may be limiting their capacity for wildfire liability and sometimes even excluding this risk. An insurance policy may also define wildfire differently than a court, potentially compromising coverage applicability.

Additionally, certain lenders may be linking the purchase of wildfire insurance limits to specific financing options. This means that to qualify for certain types of loans or financial products, borrowers may need to obtain a certain level of wildfire insurance coverage. This connection is likely aimed at reducing risk for the lenders, ensuring that properties in areas prone to wildfires are adequately protected.

Wildfires also pose a significant risk for the directors and officers of utility companies, and could have severe financial, operational, regulatory, and reputational implications. For example, a wildfire may lead to financial liabilities from lawsuits and increased insurance costs, as well as the need for substantial capital investments in infrastructure improvements. 

Operationally, companies may face service disruptions and require increased resource allocation for emergency responses, while regulatory scrutiny and compliance costs could also rise. Additionally, reputational damage from poor wildfire management can erode public trust and stakeholder relationships, impacting a company's long-term viability.

3 strategies for managing wildfire liability risk

Wildfires can threaten the safety of individuals, disperse communities, and jeopardize properties and critical infrastructure. To effectively navigate the multiple complexities related to wildfires, utility and critical infrastructure organizations should develop a comprehensive wildfire strategy that helps senior leaders better understand specific exposures and take action to address them.

Effectively managing risks requires a comprehensive understanding of their potential impact on your organization, beginning with your people and extending to your property, operations, and assets. The following actions can serve as a valuable launchpad for assessing your exposures and better quantifying their impacts:

  • Determine how wildfire risk could impact your people and physical assets, assessing your existing evacuation plans, buildings, equipment, and natural resources.
  • Identify potential service interruption issues and impacts, including disruptions to operations, supply chains, and customer service.
  • Consider how infrastructure and transportation networks may be impacted, assessing vulnerabilities in roads, bridges, and utility lines that could hinder access and response efforts.
  • Conduct comprehensive wildfire liability modeling to gain a view into possible economic loss from insured property damage and, potentially, business interruption. Keep in mind, however, that wildfire events may lead to costs related to liability for injury and death, suppression costs, evacuation expenses, and legal fees, many of which vary greatly across geographies.

Equipped with an understanding of your exposures, the next step is creating a comprehensive wildfire mitigation and crisis response plan. A significant focus for utility and critical infrastructure companies should include enhanced maintenance and inspection protocols for physical assets, ensuring that they are well-prepared to withstand wildfire threats. 

Your plan should also account for system hardening measures, such as creating defensible space around structures, using fire-resistant materials, and implementing vegetation management best practices. Many utility companies are also setting power lines that traverse dry areas, so they shut down promptly when branches come into contact with them. This proactive measure may reduce the likelihood of sparks igniting wildfires. Since outages could impact customers, it is important to have a clear and consistent communication policy to alert those affected, possibly even providing advance warning.

Additionally, it is important to establish crisis response plans that clearly outline employees’ and teams’ roles and responsibilities, communication strategies, and evacuation procedures. It is also important to be in close contact and coordinate with local firefighting resources and hold regular training and drills, including tabletop exercises, to help all stakeholders become familiar with the plans. Doing so will allow them to respond more effectively and quickly in the event of a wildfire.

A strong risk management strategy should work in tandem with comprehensive risk transfer options. Given the dynamic, fast-paced changes in the wildfire liability landscape, the search for risk transfer options now extends beyond the traditional mechanisms (like insurance and self-insurance) to captives, pools, and parametric options. Engaging with third-party risk advisors can help you explore the best options for your business needs.

Premiums, terms and conditions, as well as capacity typically depend on a combination of factors, including the frequency and intensity of wildfires in a given region, historical loss data, and the specific vulnerabilities of properties at risk. Additionally, changes in climate patterns, land use, and vegetation management practices can influence the likelihood of wildfires, prompting insurers to reassess coverage options. Your broker or advisor can work with you to understand your specific challenges and help you build a tailored insurance program with the goal of providing more adequate protection.

Additionally, organizations can collaborate with local governments and community organizations to participate in wildfire risk reduction initiatives, such as the US’s Collaborative Wildfire Risk Reduction Program, which may lead to enhanced community resilience and potentially also lower insurance premiums. 

Considering the increased threat of wildfires in a number of regions and their significant implications on individuals, communities, and organizations, as well as the potential liabilities, it is imperative for utility and critical infrastructure companies to effectively manage their risks. A combination of thorough risk assessment, robust mitigation measures, and effective risk transfer can help you build business resilience and better protect your greatest asset, your people, with the goal of helping them remain safe and prepared.

To learn more about how to protect your organization from wildfire risk, speak with a Marsh representative and/or visit our Wildfire Resource Center.

Contact us Visit our Wildfire Resource Center

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