By Robert Bates
Wildfire is a key exposure for solar PV assets. They are – obviously – installed in places with high solar irradiation to maximise energy converted from sunlight to electricity. But such places tend to overlap – or even, precisely overlay – wildfire-prone areas. Sunny conditions encourage vegetation growth, and a lack of rain dries out that vegetation. This constitutes excellent fuel for wildfires to burn. You still need an ignition source of some kind, of course, but the essential ‘ingredients’ for wildfire exist. Note that insurers tend to deem fires initiating at the solar asset itself (for example, in an inverter fire) as ‘wildfire’, in slight contradiction to the dictionary definition of the term. If there’s a fire on your project, and it’s spreading, it’s likely to be considered a wildfire regardless of cause.
Wildfire is a such a concern because of the extensive loss of life and property it can bring about, both to owners and third parties. Large insurance claims have been incurred. Market leaders GCube stated that ‘tens of millions’ have been paid out over the past decade,1 and only a few months ago, ‘apocalyptic’ scenes in Hawaii caused at least 100 deaths and widespread property damage.2 Moreover, as much as 50% of extreme weather claims in solar PV were related to wildfire losses during the decade to 2021,3 although that proportion has likely decreased since the hail events of the past couple of years. Smoke from wildfire also makes it harder for panels to absorb sunlight,4 reducing power generation even at those nearby projects not directly damage by fire.
To protect themselves from future wildfire losses, (re)insurers have increasingly inserted Protective Safeguards Warranties (or ‘Endorsements’) into their policies. Warranties are special clauses in insurance policies that oblige the insured to do (or not do) specified things, and failure to comply results in claims being denied. In this context, examples of acts with which insureds must comply include:
- Management of vegetation, including:
- Maintain vegetation to less than 10 inches in height under and in the areas between solar panel strings and at least 24 inches below the lowest point of any solar panel; and
- Where solar panels are fixed tilt and ground clearance is less than 12 inches, vegetation is eradicated or cut as low as reasonably possible.
- Inspection, testing and maintenance of fire detection, protection and extinguishing systems in full working order and in compliance with any applicable local codes;
- Any contract services relating to the above.
All versions of this clause include 1 and 3, and often, but not always, include 2. Some versions write cover back in if the insured advises insurers of any non-compliance, and gives reasons that are accepted to by insurers. But all these clauses typically go on to state that partial or ‘substantial’ compliance will not satisfy the warranty. Insureds must comply in full with all of it, or insurers will deny the claim. They also state that if insurers contend a breach of this warranty has occurred, the burden of proving the contrary is on the insured.
These clauses raise several issues. Firstly, usually when an insurer asserts breach of warranty, the burden of proof is on insurers. While these clauses have mostly been applied to US policies, it’s not clear that this would be legally enforceable in the UK, for example, because they contradict the Insurance Act of 2015 (which puts the onus on insurers). Similarly, there are some states in the US where excluding insurance cover for fire is not permitted under state law. California – the ‘Sunshine State’, where about 30% of the state’s electricity comes from solar PV – is one such example. The courts might decide that public law prevails over whatever has been agreed in the insurance policy.
Secondly, even if insureds and brokers were to accept these clauses as cohering with public law, how does an insured demonstrate compliance in the event of a claim? Wildfires tend to destroy all the evidence. Are we to advise insureds to meticulously document the length of the grass at their projects, and film timestamped videos of site personnel brandishing rulers? What are loss adjusters and claims handlers actually expecting to see? Satellite imagery will only be able to tell you so much – it’s a top-down, bird’s eye view. Recent innovations may change this, and some service providers like Aspia Space and Origin Digital say they can measure grass height (although not specifically for this application).5 For now, maintenance records are likely the best option we have. But these must be performed regularly, or the growth will outpace the records and render them obsolete. The most common type of grass in California is called tall festuca,6 and it grows 1 inch per week in summer – which could be the difference between a covered claim and one that’s denied.
Finally, what if a covered cause of loss means the insured is not able to comply with the obligations imposed by the warranty, and a wildfire claim results? For example, what if the reason why a claim occurred at an owner’s site was wildfire in the broader region rendering the site inaccessible for several days, or even weeks, meaning the vegetation had not been cut to the specified level, and or that fire protection equipment had not been maintained and failed to function? In other lines of business, like commercial property, such considerations have led courts to rule in favour of insureds, provided they can prove they had been complying as much as possible prior to the loss. One law firm has even opined that in cases such as these, the Protective Safeguards Warranty has been rendered ‘meaningless’.7
It is understandable for (re)insurers to try and limit their exposure to large wildfire losses. Arguably, clauses like these also help disseminate sensible risk management processes that prudent insureds should be following anyway. But it’s not clear that drafters of these clauses have thought through their implications. These clauses will be unenforceable in certain jurisdictions, very difficult to adjust everywhere, and contrary to prevailing legal opinion in the US if the reason for non-compliance is a covered cause of loss. We need clarity, and equitable insurance solutions for solar developers, or we could end up with developers and insurers tied up in claims litigation when we urgently need more solar to transition away from fossil fuels and mitigate the worst predicted effects of climate change. Both parties are needed for the energy transition to take place, and Nardac is ready to mediate, advocate, and innovate joint solutions to achieve it.
Disclaimer
This article does not constitute legal advice; readers are advised to consult a lawyer qualified in your jurisdiction.
- Ibid. ↩︎
- ‘’I was trapped’: Maui fire survivors speak out as emergency declared’, ABC News, 9 August 2023, accessed at <‘I was trapped’: Maui fire survivors speak out as emergency declared – ABC News (go.com)> ↩︎
- ‘GCube: Prepare solar assets for wildfire season’, Energy Global, 21 June 2021, accessed at https://www.energyglobal.com/solar/21072021/gcube-prepare-solar-assets-for-wildfire-season/ ↩︎
- ‘Wildfire smoke slashed solar power generation’, The Verge, 12 June 2023, accessed at <Wildfire smoke slashed solar power generation – The Verge> ↩︎
- Grassland Farmers to remotely measure grass height from space – Launching the UK back into space (cornwallspacecluster.co.uk) ↩︎
- https://www.ranchowater.com/DocumentCenter/View/9/Outdoor-Water-Use-Efficiency—Turf-TypesbidId=#:~:text=Tall%20Fescue%20(Festuca%20arundinacea)%20is,than%20other%20types%20of%20grass. ↩︎
- ‘The Applicability of the Protective Safeguard Provision, and Common Situations that Would Effectively Render the Provision Meaningless’, Merlin Law Group, 27 June 2021, accessed at < https://www.propertyinsurancecoveragelaw.com/blog/the-applicability-of-the-protective-safeguard-provision-and-common-situations-that-would-effectively-render-the-provision-meaningless/> ↩︎