PG&E, Insurance Companies Strike $11 Billion Deal to Settle Wildfire Claims

PG&E crews work to restore utility services in Paradise on Feb. 1, 2019, in the wake of last fall's Camp Fire, California's deadliest and most destructive blaze in modern history. PG&E has conceded it expects investigators to conclude that its equipment started the blaze. (JOSH EDELSON/AFP/Getty Images)

Updated 10 a.m. Friday, Sept. 13

PG&E has cleared another major hurdle in its quest to settle claims related to the devastating Northern California fires the utility caused in 2017 and 2018, announcing a proposed $11 billion settlement with insurance companies that have already paid victims of those disasters.

The settlement is a big step toward what PG&E needs to do to exit bankruptcy protection by next June – a deadline set by a recently enacted law that will allow the company to participate in a new, state-run wildfire insurance fund.

PG&E's Wildfire and Bankruptcy Struggles
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The settlement announced Friday is between PG&E and a group of insurers known as the ad hoc subrogation group that has been formally recognized in bankruptcy court as one of the company's major creditors. The group holds 85% of uninsured insurance claims from the 2017 and 2018 fires, which destroyed more than 20,000 homes and killed 130 people.

“Today’s settlement is another step in doing what’s right for the communities, businesses and individuals affected by the devastating wildfires,” PG&E CEO Bill Johnson said in a statement.

“As we work to resolve the remaining claims of those who’ve suffered, we are also focused on safely and reliably delivering energy to our customers, improving our systems and infrastructure, and continuing to support California’s clean energy goals," Johnson said. "We are committed to becoming the utility our customers deserve."

The settlement does not cover individual wildfire victims who have sued PG&E.

Wildfire victims' attorney Amanda Riddle was highly critical of the settlement, which she said came as a surprise.

“They are putting the needs of victims to the bottom – it is their last priority and that speaks volumes,” she said.

The settlement amount of $11 billion, which is intended to settle all insurance company claims and is subject to final approval by U.S. Bankruptcy Judge Dennis Montali, is much less than the $20 billion in claims filed by members of the ad hoc subrogation group.

In a statement, the ad hoc subrogation group said that while the agreement falls far short of its unsecured claims, "We hope that this compromise will pave the way for a plan of reorganization that allows PG&E to fairly compensate all victims and emerge from Chapter 11 by the June 2020 legislative deadline."

But the $11 billion settlement figure is substantially more than what the company proposed in a reorganization plan filed with the bankruptcy court just four days ago.

Under that plan, the company proposed paying insurance companies $8.5 billion. In its Friday statement, PG&E said it will secure additional equity financing to cover the higher settlement amount.

The company has yet to come to terms with the tens of thousands of individual wildfire victims who have sued PG&E in the wake of fires that ravaged communities across Northern California in October 2017 and November 2018.

Attorneys for those plaintiffs were highly critical of PG&E's reorganization plan, which called for paying individual plaintiffs $8.4 billion. Some victims' lawyers dismissed that amount as "woefully inadequate" and "a joke."

Plaintiffs' attorney Riddle said there could be as many as 50,000 victims who file claims through the bankruptcy court by the Oct. 21 deadline.

Riddle estimated that those victims should be entitled to as much as $30 billion to $33 billion based on past PG&E settlements with individual plaintiffs, which she said have run about three times the amount paid to insurance companies.

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The wildfire plaintiffs are also formally recognized in bankruptcy court as a PG&E creditor, and their attorneys continue to negotiate a settlement with the company.

At the same time, a large group of plaintiffs -- those who suffered losses in the catastrophic 2017 Tubbs Fire that destroyed more than 5,000 homes and killed 22 people in Sonoma County -- will head to San Francisco Superior Court this fall to argue that PG&E should be held liable for that fire. State fire investigators have determined that a private property owner, not PG&E, sparked that blaze.

Even with all the uncertainties surrounding the individual victims' cases, the proposed deal with insurers represents one major box that PG&E needed to check off as it works to exit bankruptcy.

Updates
*9:35 a.m. Friday: Story updated to clarify that the proposed agreement is with the ad hoc subrogation group but is intended to satisfy all outstanding insurance company claims against PG&E arising from the 2017-18 wildfires.
*10 a.m. Friday: Update to include comments from individual wildfire plaintiffs' attorney Amanda Riddle.

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