Hedge Funds Buy LA Fire Claims at 3 Cents on the Dollar as California's Crackdown Dies in Sacramento

Hedge funds are stepping up purchases of subrogation claims tied to the January 2025 Eaton and Palisades fires in Los Angeles after California's political push to curb the trade collapsed in Sacramento, Bloomberg reported. Eaton claims are trading at 55-60 cents on the dollar while Palisades claims fetch just 3-5 cents, according to broker Cherokee Acquisition, which recently bought roughly $100 million of Palisades-related claims for under a dime on the dollar. The development comes nearly two years after the fires torched an estimated $40 billion in insured property, with no resolution on who ultimately pays.

The crackdown that wasn't began last summer when the California Earthquake Authority branded the bets opportunistic speculation, and culminated in SB 254, signed in September 2025, which gave utilities a right of first refusal on claims for fires damaging more than 1,000 structures. A subsequent compromise, SB 492, would have prohibited private equity from investing in wildfire claims, but the Assembly let it die on the final day of session without a vote. The failure triggered a sharp selloff in utility stocks—PG&E plunged as much as 21% and Edison as much as 24%—and six weeks later neither has recovered, with Edison closing Friday at $55.30 and PG&E at $13.13, both roughly a quarter below their August 27 closes. Cherokee's Bradley Max said the right of first refusal hasn't cost him a single deal, adding there is "plenty of appetite for buyers and sellers."

The divergent pricing reflects legal risk: Eaton is the "clean" trade after Cal Fire concluded electrical arcing on an out-of-service Edison transmission tower caused the blaze, though a judge tentatively denied insurers' summary judgment motion and a bellwether trial is set for January 25, 2027. Palisades has no investor-owned utility to sue—federal prosecutors allege the fire was a holdover from the Lachman Fire, but the first trial ended in a mistrial and the retrial was pushed to early November. Buyers of Palisades paper are effectively betting on LA ratepayers and taxpayers. Near-term catalysts include the Rinderknecht retrial, Edison's November 30 compensation deadline, a possible lame-duck special session sought by Edison CEO Pedro Pizarro, and the Eaton bellwether trial.