Hedge Funds Step Up Purchases of LA Fire Insurance Claims at 3 to 60 Cents on the Dollar

Hedge funds are buying more legal claims tied to the January 2025 Los Angeles fires. Prices run from as little as 3 cents on the dollar to about 60 cents, according to transaction details Bloomberg reported on Oct. 11.

The buying picked up after political opposition in Sacramento lost steam. An impasse in the state legislature has reassured investors that there is still room to do deals.

What the claims are and what they sell for

The Eaton and Palisades fires caused about $40 billion in insured losses, by some estimates. Roughly 20 months later, the fight over who foots that bill is unresolved. Verisk, the risk-assessment firm, calls the fires a "historical loss event" with "a multiyear development tail."

Subrogation is the legal mechanism that lets an insurer go after a third party, such as a utility whose lines are suspected of starting a fire, to recover what it paid policyholders. Instead of waiting years for litigation, an insurer can sell those rights to an investor at a discount for immediate cash. The investor bets the eventual recovery beats the purchase price.

Bradley Max, a director at the New York-based broker Cherokee Acquisition, put numbers on the current market:

• Eaton fire claims are changing hands at about 55 to 60 cents on the dollar.
• Palisades fire claims, which carry heavier questions about establishing liability, are trading at about 3 to 5 cents.
• Cherokee itself recently bought roughly $100 million of Palisades-related claims at under 10 cents on the dollar. Max would not name the insurer.

Max said funds are targeting returns in the low-to-mid teens. "Most hedge funds are looking for returns in the low-to-mid teens and are happy with that," he said. He also said deals typically fund within a couple of weeks.

Max brokers these trades, so he profits when volume rises. He declined to name any insurers or funds involved.

How the Sacramento push fizzled

Last year Max described "a chill" in this market. Now he says: "There's plenty of appetite for buyers and sellers. Insurance companies know that there is liquidity available and the market has become more mainstream."

The chill followed pressure from state officials. Last summer the California Earthquake Authority, which administers the state Wildfire Fund, called these purchases opportunistic speculation and said it would take on the funds behind them. Gov. Gavin Newsom's office argued that utilities were settling subrogation claims too generously, often with hedge funds that had bought the claims hoping for bigger payouts, and that this was draining the Wildfire Fund.

By mid-April 2025, the investment bank Oppenheimer had counted at least 10 transactions covering more than $1 billion in recovery rights across the two fires. Eaton claims had traded as high as 50 cents on the dollar before the Authority's criticism knocked them down "at least a few points," Max said at the time. They have since climbed past that old high, and he said at the time that the criticism had not stopped deals.

What the law did, and what lawmakers refused to do

SB 254, signed in September 2025, did not ban the trade. For fires damaging more than 1,000 structures, insurers and their assignees, typically hedge funds, must now give the utility a right of first refusal to settle the claim directly. The law also created an $18 billion Continuation Account to supplement the Wildfire Fund.

Max says the right of first refusal has not cost him a single deal. He said he would be surprised if utilities or government entities had the means to buy the claims themselves.

In August 2026, a showdown followed. In a last-minute push, Newsom proposed limiting or eliminating insurers' right to recover wildfire costs from utilities. Lawmakers refused. They warned that gutting subrogation would destabilize California's fragile insurance market, raise premiums and drive insurers out, according to Bloomberg's reporting.

The two arguments now stand in direct conflict. Newsom's office says the deals leak money from a fund meant to cover wildfire damage. Lawmakers who rejected his proposal say that stripping insurers' recovery rights would hurt policyholders. The investors' own case, as Max makes it, is that the market gives insurers cash now.

California's inverse condemnation doctrine is part of why the claims have value. Under it, plaintiffs suing investor-owned utilities do not have to prove negligence.

What is still open

The price gap between the two fires reflects how unsettled liability is. Eaton claims trade at more than half of face value. Palisades claims trade at pennies because, as Max put it, they carry heavier questions on establishing liability. Buyers at 3 to 5 cents are wagering on an outcome nobody has yet established.

No new legislation has been announced to restrict the trade. Whether lawmakers return to the issue, and whether utilities or the Wildfire Fund end up paying more or less because of who now holds the claims, will not be known until those claims are settled or litigated.