The Blubber

Real estate investor Robert Rivani spent $27 million purchasing and renovating a luxury beachfront property on Malibu's renowned "Billionaire's Beach." However, after the mansion was destroyed by fire, he expects only a fraction of that amount from an insurance payout.

According to The Wall Street Journal, Rivani had intended to list the five-bedroom home for $40 million this spring, having purchased it for $19.55 million in 2022. But the Palisades Fire consumed the property last week.

“What value do you assign to a community where everything is burned to a crisp—where restaurants, grocery stores, gas stations, and even power are gone?” Rivani told the Journal.

The Palisades Fire has scorched approximately 23,700 acres, with officials estimating that 5,300 structures, many being high-end homes, have been damaged or destroyed. The death toll from the blaze currently stands at eight.

Rivani revealed that no insurer would fully cover the Malibu mansion’s value, forcing him to rely on California’s FAIR Plan, the insurer of last resort. However, the plan caps residential coverage at just $3 million.

Adding to the financial strain, Rivani said he faces combined mortgage and property tax payments exceeding $100,000 per month, even though the home no longer exists. (California offers temporary relief on mortgage and property tax payments for fire victims.)

“We pay hundreds of thousands of dollars annually in property taxes, yet there are no functional fire hydrants? It’s unbelievable,” Rivani stated.

California Governor Gavin Newsom has called for an investigation into the fire hydrant failures. Los Angeles Mayor Karen Bass dismissed allegations of unpreparedness, attributing the disaster to extreme winds and severe drought.

Officials explained that the municipal water system was designed to address single-home fires, not widespread neighborhood blazes. While sufficient water is available citywide, the infrastructure was unable to deliver enough water quickly to the areas most affected.

The wildfires that swept through Pacific Palisades, Malibu, and Altadena have destroyed 12,000 structures, with damages estimated between $135 billion and $150 billion by AccuWeather. This ranks among the most devastating wildfires in modern U.S. history, with the confirmed death toll now at 25.

The disaster has exposed vulnerabilities in California's insurance market, which has been strained by recent catastrophic events. Insurers like State Farm have significantly reduced coverage in high-risk areas, including cutting nearly 70% of policies in Pacific Palisades last year.

As private insurers withdraw, many homeowners have turned to the FAIR Plan. By September, the plan's exposure to residential properties had soared to $458 billion, a 61% increase from the previous year. In Pacific Palisades alone, FAIR insured nearly $6 billion worth of property.

FAIR maintains that it can fulfill policyholder claims, citing state laws allowing it to recoup costs from primary insurers, which may ultimately pass expenses on to customers.

State regulators are working to stabilize the insurance market. Just before the fires erupted, California introduced a regulation requiring insurers to gradually expand coverage in wildfire-prone areas. Under the rule, carriers must increase their market share in these regions by 5% every two years until they reach at least 85% of their statewide share.

In exchange, insurers can factor reinsurance costs into their pricing models. However, advocacy group Consumer Watchdog warned that the regulation might lead to premium hikes of 40% to 50% for homeowners without significantly improving coverage in high-risk areas. The state’s insurance commissioner has disputed these projections.