Woodland Hills personal injury attorney has significant experience in insurance and insurance coverage. Often, the ability to understand and access insurance coverage is a key component in a successful recovery in a large personal injury action. Many of the insurance coverage principles overlap when analyzing your own first party property damage claims—particularly water damage claims. Most homeowners are baffled when their water damage or other claim is denied. I always recommend that the insured actually read the policy and consider the “efficient proximate cause” of the loss, especially when there are multiple causes for the loss.
In California, the efficient proximate cause doctrine is “the preferred method for resolving first party insurance disputes involving losses caused by multiple risks or perils, at least one of which is covered by insurance and one of which is not.” (Julian v. Hartford Underwriters Ins. Co. (2005) 35 Cal.4th 747, 753.) California Insurance Code sec. 530 provides: “An insurer is liable for a loss of which a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss of which the peril insured against was only a remote cause.” Confusing—-right?
Insurance Code sec. 532 appears to conflict with Insurance Code sec. 530, which states: “If a peril is specially excepted in a contract of insurance and there is a loss which would not have occurred but for such peril, such loss is thereby excepted even though the immediate cause of the loss was a peril which was not excepted.” (Ins. Code § 532.) The Supreme Court resolved the apparent conflict between these sections in Sabella v. Wisler (1963) 59 Cal.2d 21. In Sabella, the insurer relied on Insurance Code sec.532 in arguing that, if the loss would not have occurred “‘but for’” the excluded peril, then the exclusion precluded coverage for the loss. (Sabella, at p. 33.) The court rejected that argument: “[I]f section 532 were construed in the manner contended for by defendant insurer, where an excepted peril operated to any extent in the chain of causation so that the resulting harm would not have occurred ‘but for’ the excepted peril’s operation, the insurer would be exempt even though an insured peril was the proximate cause of the loss.” (Id.) That result would be contrary to sec. 530, which provided for coverage when the peril insured against proximately caused the loss. (Sabella, at p. 33.) The court interpreted the “but for” cause referred to in section 532 to mean the peril that proximately caused the loss, and the “‘immediate cause of the loss’” to mean the peril immediate in time to the occurrence of the damage. (Sabella, at pp. 33–34.) The court established this general rule: “‘[I]n determining whether a loss is within an exception in a policy, where there is a concurrence of different causes, the efficient cause—the one that sets others in motion—is the cause to which the loss should be attributed, though the other causes may follow it, and operate more immediately in producing the disaster.’” (Id. at pp. 31–32; Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 404 (Garvey), emphasis added.)
The “efficient proximate cause” referred to in Sabella has also been called the predominant cause or the most important cause of the loss. (Garvey, supra, 48 Cal.3d at p. 403; Julian, supra, 35 Cal.4th at p. 754.) “By focusing the causal inquiry on the most important cause of a loss, the efficient proximate cause doctrine creates a ‘workable rule of coverage that provides a fair result within the reasonable expectations of both the insured and the insurer.’” (Julian, at p. 754.)
“Policy exclusions are unenforceable to the extent that they conflict with [Insurance Code] section 530 and the efficient proximate cause doctrine.” (Julian, supra, 35 Cal.4th at p. 754.) Thus, an insurer cannot contract around the efficient proximate cause doctrine to give broader effect to its policy exclusions.
In Garvey, the plaintiffs’ house was insured with an all-risk homeowner’s policy issued by the defendant. (Garvey, supra, 48 Cal.3d at p. 399.) The policy insured against all risks of physical loss to the property covered, unless coverage was excluded. (Ibid.) It excluded losses “‘caused by, resulting from, contributed to or aggravated by any earth movement …’ and losses caused ‘by … settling … of … foundations, walls, floors, roofs or ceilings.’” (Id. at pp. 399–400.)
An addition to the plaintiffs’ house began to pull away from the main structure, and they filed a claim with the insurer. The defendant denied the claim, based on the exclusions for earth movement and settling. (Garvey, supra, 48 Cal.3d at p. 400.) The plaintiffs sued, contending the loss was caused by contractor negligence, and such negligence was not an excluded peril under the policy. (Id.) The court held the efficient proximate cause rule applied to the plaintiffs’ first party property damage claim, rejecting application of a concurrent proximate cause rule applicable in third party liability insurance cases. (Id. at pp. 405–408.) The court reversed the trial court’s directed verdict in favor of the plaintiffs and remanded so a properly instructed jury could decide which peril was the efficient proximate cause of the plaintiffs’ loss. (Id. at pp. 412–413.)
Thus, although the policy purported to exclude coverage if earth movement or settling merely “contributed to” the loss, the court held the efficient proximate cause doctrine applied, so that the exclusion precluded coverage only if an excluded peril—earth movement or settling—was the efficient proximate cause of the plaintiffs’ loss. (Garvey, supra, 48 Cal.3d at pp. 412–413.)
In Howell v. State Farm Fire & Casualty Co. (1990) 218 Cal.App.3d 1446 (Howell), the plaintiff’s property was located on a hillside subject to landslides. (Howell, at p. 1449.) One summer, a fire destroyed the vegetation on the slope; the following winter, unusually heavy rains combined with the bare slope to cause a landslide, which damaged structures on the plaintiff’s property. The plaintiff’s expert concluded the landslide probably would not have occurred if the groundcover had not been destroyed. (Id.)
The plaintiff’s homeowners policy insured against accidental direct physical loss to the dwelling and other structures. (Howell, supra, 218 Cal.App.3d at p. 1449.) It excluded coverage of loss “‘which would not have occurred in the absence of one or more of the following excluded events. We do not insure for such loss regardless of: a) the cause of the excluded event; or b) other causes of the loss; or c) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss ….’” (Id.) Earth movement and water damage were on the list of excluded events. (Id. at pp. 1449–1450.)
After the plaintiff’s insurer denied her claim, she sued; the defendant moved for summary judgment, relying on the exclusions for earth movement and water damage. (Howell, supra, 218 Cal.App.3d at p. 1451.) The plaintiff argued the fire was the efficient proximate cause of the loss, because it permitted the landslide to occur. The trial court granted the defendant’s motion. (Id.)
On appeal, the defendant contended the exclusion precluded coverage because the loss would not have occurred but for the excluded peril of earth movement. The court responded: “Stated simply, the important question presented by this case is whether a property insurer may contractually exclude coverage when a covered peril is the efficient proximate cause of the loss, but an excluded peril has contributed or was necessary to the loss. We conclude that a property insurer may not limit its liability in this manner, since the statutory and judicial law of this state make the insurer liable whenever a covered peril is the ‘efficient proximate cause’ of the loss, regardless of other contributing causes. Consequently, the policy exclusions at issue in this case are not enforceable to the extent they conflict with California law.” (Howell, supra, 218 Cal.App.3d at p. 1452, fn. Omitted, emphasis added.) Because there was a triable issue of fact regarding whether the fire or earth movement was the efficient proximate cause of the loss, the court reversed the summary judgment. (Id. at pp. 1459–1460.)
Recently, in Vardanyan v. AMCO Ins. Co., (published order January 7, 2016) Cal.App.4th , the court considered and reversed a directed verdict for the insurer regarding a policy that had “collapse” coverage. In that case, there was evidence of multiple leakage problems, which individually would be excluded. The court found that the policy provision in issue defined coverage, not an exclusion. It provided that collapse is covered if caused by specific listed perils.
The court further acknowledged that the combination of a listed, covered peril or perils, with a host of potential unspecified, unlisted perils is in itself problematic. A reasonable insured would not anticipate that a listed, covered peril, if combined with some completely unrelated, unspecified peril, would result in an exclusion of coverage. This is particularly true when the provision is a coverage provision, not an exclusion; a reasonable insured would understand that, if one of the specified perils was the predominant or most important cause of the collapse, the loss would be covered. The court held that if any other peril contributes to the loss, whether the loss is covered or excluded, depends upon which peril is the predominant cause of the loss—-a question of fact for the jury.
Accordingly, if you are baffled about a water damage or other claim being denied by an insurer, I always recommend that the insured actually read the policy and consider the “efficient proximate cause” of the loss, especially when there are multiple causes for the loss.
