BAKERSFIELD, CA – California businesses face a unique—and expensive—insurance challenge. Unlike most states where standard commercial property insurance covers the primary risks, California requires three separate policies for comprehensive protection:
- Standard commercial property insurance (fire, theft, vandalism, wind)
- Wildfire coverage (often through California FAIR Plan)
- Earthquake coverage (mandatory separate policy)
For Bakersfield businesses, this fragmented approach creates confusion, coverage gaps, and significantly higher costs. The January 2025 Los Angeles wildfires—which caused an estimated $25-40 billion in insured losses and destroyed 20,000+ structures—exposed just how complex and inadequate California's insurance system has become.
Understanding what each policy covers, when they apply, and how they interact is no longer optional. It's essential to business survival in a state where catastrophic wildfire and earthquake risks are increasing every year.
California's Unique Insurance Landscape: Why Three Policies?
The Historical Context
California's insurance market fractured after a series of catastrophic events:
- 1994 Northridge Earthquake: $15.3 billion in insured losses pushed insurers to exclude earthquake coverage from standard policies
- Oakland Hills Fire (1991): $1.5 billion in losses, followed by increasing wildfire frequency
- 2017-2020 Wildfire Seasons: Camp Fire, Woolsey Fire, and others caused tens of billions in losses, driving insurers out of California
The result: Insurers carved out exclusions for California's two biggest risks—wildfires and earthquakes—leaving property owners to purchase separate coverage.
What Standard Commercial Property Insurance Covers
Your base commercial property policy typically covers:
- Fire (but increasingly excludes wildfire in high-risk areas)
- Lightning
- Windstorm and hail
- Explosion
- Riot and civil commotion
- Aircraft and vehicle damage
- Smoke (not from wildfires)
- Vandalism and theft
- Water damage (from burst pipes, not flooding)
Critical exclusions:
- Wildfire in designated high-risk zones
- Earthquake and related ground movement
- Flood (requires separate federal flood insurance)
What Wildfire Coverage Adds
California's expanding wildfire zones have pushed millions of properties into areas where standard insurers won't cover fire damage—or will only cover it at exorbitant rates.
California FAIR Plan: The state-created insurer of last resort provides wildfire coverage when private insurers won't. As of August 2025, new regulations require insurers using catastrophe models to write and maintain coverage in wildfire-prone areas—potentially easing the availability crisis.
What it covers:
- Direct fire damage to buildings and contents
- Smoke and soot damage from wildfires
- Debris removal
- Additional living expenses (for residential) or loss of income (for commercial)
What it doesn't cover:
- Earthquake
- Flood
- Landslides or mudslides (unless proximately caused by fire)
The cost: FAIR Plan policies cost significantly more than standard coverage—often 2-4x regular premiums for the same coverage limits.
What Earthquake Coverage Adds
California sits on multiple major fault lines, with the San Andreas being the most famous. Standard commercial policies explicitly exclude earthquake damage, requiring separate coverage through:
- California Earthquake Authority (CEA) for residential
- Private earthquake insurers for commercial properties
What it covers:
- Building damage from ground shaking
- Contents damage
- Business interruption
- In some cases, fire following earthquake
What it doesn't cover:
- Flood or tsunami (despite being earthquake-related)
- Damage from landslides unless directly caused by earthquake
The cost: Earthquake premiums vary dramatically based on:
- Building age and construction type
- Proximity to fault lines
- Soil type
- Deductibles (typically 10-20% of building value)
Average deductibles: A $1 million building might have a $100,000-$200,000 earthquake deductible—meaning significant out-of-pocket costs even with coverage.
Four Scenarios Where Bakersfield Businesses Discover Coverage Gaps
Scenario 1: Wildfire Smoke Damage Without Flames
Your Bakersfield business isn't in the fire's path, but smoke infiltrates the building, contaminating inventory, damaging HVAC systems, and making the space temporarily unusable.
You file a claim under your standard policy.
The insurer's response:
- "This is wildfire-related damage. Your standard policy excludes wildfires in designated zones. File with your FAIR Plan policy."
You don't have FAIR Plan coverage because your building wasn't in an obvious fire zone—just near one.
The gap: Smoke damage from distant wildfires often isn't covered by standard policies if you're in or near wildfire zones, but property owners don't always realize they need separate wildfire coverage for smoke-only damage.
California's "all loss by fire" protection: Insurance Code §§ 2070-2071 mandates coverage for "all loss by fire"—which courts have interpreted to include toxic smoke contamination even without direct flames. But this applies to policies that cover fire at all. If your policy excludes wildfire entirely, this protection may not help.
Scenario 2: Earthquake-Triggered Fire
A moderate earthquake damages your building's gas lines. Hours later, a fire breaks out from the gas leak, destroying the structure.
You file claims under both your standard policy (fire) and earthquake policy.
The coverage dispute:
- Standard policy: "Fire was caused by earthquake. Earthquake damage is excluded. Denied."
- Earthquake policy: "Fire occurred after the earthquake stopped. This is fire damage, not earthquake damage. Denied."
The gap: When one peril triggers another, "efficient proximate cause" doctrine should apply—meaning the initial cause (earthquake) determines coverage. But insurers often dispute this, leaving policyholders fighting both insurers.
The defense: California law generally requires coverage under the earthquake policy when earthquake proximately causes subsequent damage, including fire. But litigation may be necessary to force payment.
Scenario 3: Wildfire-Caused Mudslide
A wildfire burns vegetation on hillsides near your property. Months later, winter rains cause mudslides that damage your building.
You file a claim.
The insurer's position:
- Standard policy: "Mudslides and earth movement are excluded."
- Wildfire policy: "Mudslides occurred months after the fire. Not covered."
- Earthquake policy: "This isn't earthquake-related. Denied."
The gap: Three policies, none willing to pay.
California DOI Bulletin 2025-3 clarified that wildfire policies may cover subsequent mudslides under the "efficient proximate cause doctrine"—if the fire was the primary cause setting events in motion. But enforcement requires understanding and asserting this protection.
Scenario 4: Combined Earthquake and Fire
A major earthquake damages your building structurally, then fire breaks out during or immediately after the shaking (due to damaged gas lines, electrical faults, or other causes).
Coverage should theoretically apply through the earthquake policy for both shake damage and resulting fire.
The complexity: You must prove the fire resulted from the earthquake, not from a separate cause. If insurers can argue the fire was independent, they'll try to deny coverage.
The defense: Immediate post-earthquake fires are almost always earthquake-caused. Document the timeline—fire within hours of the quake should be covered.
Five Critical Steps Bakersfield Businesses Must Take
Step 1: Map Your Actual Risks
Don't guess. Understand your specific exposures:
- Wildfire risk: Check CalFire hazard maps. Even if you're not in a "very high" zone, proximity to fire-prone areas creates smoke/ember exposure.
- Earthquake risk: Identify nearby fault lines using USGS earthquake hazard maps. Buildings on soft soil near faults face higher risk.
- Flood risk: Though we've focused on fire and earthquake, don't forget flood insurance if you're near waterways.
Free resources:
- CalFire Fire Hazard Severity Zone Maps
- USGS Earthquake Hazards Program
- FEMA Flood Map Service Center
Step 2: Review All Three Policies Simultaneously
Don't review policies in isolation. Compare them side-by-side to identify gaps.
Key questions:
- If wildfire causes mudslides, which policy pays?
- If earthquake causes fire, which policy pays?
- Do coverage limits across all three policies total enough to rebuild?
- Are deductibles affordable if multiple perils strike at once?
Hire a commercial insurance broker who specializes in California's complex market. They understand how the three policies interact and can identify gaps.
Step 3: Increase Coverage Limits to Match Rebuild Costs
California building codes have become significantly more stringent after recent disasters. Rebuilding to current code often costs 20-40% more than original construction.
What to verify:
- Replacement cost coverage: Pays to rebuild at today's costs, not depreciated value
- Ordinance and law coverage: Pays for building code upgrades required during reconstruction
- Debris removal: Wildfire and earthquake debris removal can cost hundreds of thousands
Don't underinsure: Many businesses carry coverage based on purchase price or tax assessments—often 30-50% below actual rebuild costs.
Step 4: Budget for High Deductibles
California earthquake and wildfire policies carry substantial deductibles:
- Earthquake: 10-20% of building value
- Wildfire: Often $10,000-$50,000 or more
- Standard property: Typically $1,000-$5,000
A $2 million building could face:
- $200,000-$400,000 earthquake deductible
- $25,000-$50,000 wildfire deductible
Financial planning: Maintain liquid reserves or credit lines to cover deductibles. You can't collect insurance until you pay the deductible.
Step 5: Document Your Property Before Disaster
If disaster strikes, proving your property's value and condition becomes critical—especially with high deductibles meaning insurers pay less of the total loss.
Essential documentation:
- Professional photographs of building exterior/interior
- Video walkthrough
- Equipment and inventory lists with serial numbers, purchase dates, values
- Engineering/structural reports
- Maintenance records
Storage: Keep copies off-site in cloud storage and physical copies with your attorney or in a safe deposit box outside California.
California's 2025 Insurance Reforms: What's Changing
August 2025 brought significant changes to California's insurance market:
Wildfire catastrophe models approved: The California Department of Insurance completed review of forward-looking wildfire models, allowing insurers to:
- Use updated risk assessment to price policies
- Potentially expand coverage in previously uninsurable areas
- Better manage risk through data-driven underwriting
Mandatory coverage expansion: Insurers using these models must "write and maintain coverage in wildfire-distressed areas"—potentially easing the availability crisis that forced many businesses to FAIR Plan.
What this means for Bakersfield businesses:
- More coverage options may become available
- Premiums could stabilize as private insurers return
- But regulations are new—it will take time to see if they work
The Uncomfortable Reality: Three Policies, High Costs, Massive Gaps
California businesses face a uniquely challenging insurance landscape:
- Three separate policies required for basic protection
- High premiums for each policy
- Massive deductibles that make full recovery unlikely
- Coverage disputes when perils interact
For Bakersfield businesses, this means:
- Annual insurance costs can equal 2-3% of building value
- Out-of-pocket costs after major disasters can reach hundreds of thousands
- Business interruption coverage may not adequately reflect true recovery timelines
The strategic question: Is staying in California worth these insurance costs and risks?
Many businesses are making that calculation. For those staying, comprehensive risk management—not just insurance—becomes essential:
- Fire-resistant building materials and landscaping
- Earthquake retrofitting and structural reinforcement
- Emergency preparedness and business continuity planning
- Adequate liquid reserves for deductibles and uninsured losses
Don't wait for wildfires or earthquakes to discover your coverage gaps. Review all three policies now, understand what each covers, and ensure your business can survive California's dual threats.
Source: California Department of Insurance, California FAIR Plan, CEA, California Insurance Code