I think they changed the Regulations back around 1990 to allow such losses. Do some research. This is from Pub 925:

"Exceptions. Passive activity deductions don’t include the following items. . . . Casualty and theft losses, unless losses similar in cause and severity recur regularly in the activity."

See also

https://www.taxnotes.com/research/federal/treasury-decisions/irs-amends-passive-loss-regs-casualty-a...