In recent months, Southern Californians experienced first-hand the catastrophic impact of a sequence of events that resulted in significant fatalities and property damage from a trio of perils: rain, fire, and landslides. The sequence started with heavy rains in the spring of 2017 which led to a wide spread and rapid growth of underbrush and vegetation in the mountains in Southern California. In December of 2017, the excessive and dry vegetation provided an abundant fuel source for wildfires that ignited in multiple areas and allowed the fires to spread rapidly across the area. The Thomas Fire alone burned over 283,000 acres as it swept from inland to the Pacific Ocean.
In January 2018, heavy rains fell in areas scorched bare by the fire and caused fast moving mudslides and slope failures in populated areas. Some experts conclude the absence of vegetation to control erosion because of the wildfires contributed to the earth movement. Similar catastrophic events also occurred in 2017 in Northern California. Multiple deaths, thousands of structures destroyed by earth movement or fire, the seemingly overwhelming clean-up, and the predictions from many that this is the new norm for California, provide a cautionary tale for the Golden State.
The chain of events and the resulting catastrophic losses will likely result in first-party insurance claims and disputes over the application of flood and earth movement exclusions. A brief refresher of California law regarding causation and a reminder of an older case involving the same sequence of events seems timely.
The Efficient Proximate Cause Rule
It has long been established under California law that where a covered peril and an excluded peril occur in a sequence of events to cause a loss, a first-party insurance policy covers the loss if the covered peril was the “efficient proximate cause.” The question of efficient proximate cause is generally one for the jury, and California juries are instructed that the efficient proximate cause is the “most important or predominant” cause.1 Under an all-risk policy, the burden is on the insurer to prove the efficient proximate cause is the excluded peril. Under a named perils policy, the burden is on the policyholder to prove a covered peril was the efficient proximate cause.
The efficient proximate cause rule comes into play where two or more separate and distinct perils cause a loss and at least one is covered and one is excluded in the policy. The analysis is not needed if there is only one cause, even though other factors might be characterized as a separate peril. For example, a California court determined that where the policy excluded loss caused by brush fire, it did not matter if the fire was caused by a covered peril. The court held since all brush fires require an ignition source the cause of ignition was not a distinct peril.2
The efficient proximate cause rule is included in California statutes and an insurer cannot circumvent the law with an Anti-concurrent Cause (ACC) provision.3 An ACC provision allows the parties to contract around the efficient proximate cause rule and exclude a loss caused by an excluded and a covered peril regardless of which is the predominant or most efficient cause. California, however, is one of only four jurisdictions that specifically refuse to enforce ACC clauses. California and North Dakota have done so by statute and Washington and West Virginia have done so through case law. In addition, recently the Ninth Circuit Court of Appeals, applying Arizona and New York law, refused to enforce an ACC provision where one of the causes was fire, holding that it was inconsistent with the New York Standard Fire Policy.4
A Fire and Landslide Chain: Howell v. State Farm
In a case that dates back almost 30 years, a California Court of Appeals addressed the issue of efficient proximate cause where heavy rain on a slope, which was barren of vegetation because of a fire, caused a landslide that destroyed the policyholder’s property. The court determined it was for a jury to decide if the fire, and not the excluded peril of earth movement, was the efficient proximate cause of the loss.
In Howell v. State Farm Fire and Casualty Company,5 several buildings on the Howells’ hillside property were allegedly damaged by a landslide that occurred after a period of heavy rain. A wildfire that occurred six months prior to the landslide cleared the slope above the property of vegetation. A geotechnical expert retained by the Howells opined the landslide probably would not have happened if the ground cover had not been destroyed by the previous summer wildfire. As noted by the court, the expert’s report concluded:
"Although water was the slide's actuating mechanism, resistance to failure was severely impaired by destruction of the area's natural biotechnical slope protection. On 6/28/85 the slope that failed was devastated by a fire. The destruction of the vegetation and rooting at the surface caused a[n] adverse modification to the hydrologic regime in the soil..․In my opinion, if the vegetation had not been destroyed by the fire, the slope failure…probably would not have occurred."6
The court noted the expert’s conclusion was based in part on a review of weather data from prior years. In years before the fire when the vegetation covered the slope, even greater amounts of rain did not cause landslides.
The property was insured by State Farm and the claim for damage to the structures was denied based on the exclusions for loss caused by earth movement and water damage. The State Farm policy also included an ACC provision:
This policy does not insure against loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in sequence to the loss
* * *
C. loss caused by, resulting from, contributed to or aggravated by any of the following;
- earth movement
- flood, or surface water …
- water below the surface of the ground.
The court first confirmed the ACC was not enforceable under California law. As a consequence, the court rejected State Farm’s argument that the loss was excluded by the earth movement exclusion because the earth movement was in the sequence of events leading to the loss. The court confirmed California Insurance Code § 530, 532 made the ACC unenforceable in California. The Court noted the result “should hardly come as a surprise to State Farm” since an assistant counsel for State Farm previously acknowledged in a law review article that “an open question remains whether sections 530, 532 can be successfully altered by contract language.”7
Turning to the specific sequence of events that led to the damage to the Howell’s property, the opinion of the geotechnical expert was persuasive. The expert emphasized heavier rains in prior years did not cause earth movement and only after the wildfire destroyed the vegetation did heavy rain cause the slope failure. The court determined “it could be argued the fire created a condition that permitted natural forces, which alone may have caused no damage, to effect the damage for which recovery is sought.”8 The expert opinion was sufficient to raise a triable issue of fact that the fire was the efficient proximate cause of the landslide. Since fire was a covered peril, the court held that a reasonable juror could find that the burning of the slope was the dominating cause or the one that set the others in motion. Apparently, the court was not concerned with the temporal aspect of the chain of events as it did not comment specifically on the six-month period between the fire and the slope failure.
It is worth noting that recently the Ninth Circuit Court of Appeals, applying Arizona law and citing the California Court’s decision in Howell, reached a similar result. In Stankova v. Metropolitan Property & Casualty Insurance Co.,9 the insured suffered property damage following a massive wildfire in Northern Arizona in the summer of 2011. The fire destroyed the insured’s detached garage and consumed vegetation on the hillside, but left the insured’s residence unscathed. About a month later, however, flooding and mudslides destroyed the residence. The insured presented evidence that the loss of vegetation from the fire allowed the rain to cause the mudslide, which, in turn destroyed the house.
The court applied the efficient proximate cause rule and determined the jury must decide if the covered peril of fire was the efficient proximate cause and not the excluded peril of earth movement. The court relied on the evidence that mudslides had not occurred on the property before the wildfire despite heavy rains; that deforestation and erosion can lead to mudslides; and that the rainfall that led to the mudslide was not unusually heavy. As a result, the court reversed the trial court’s grant of summary judgment and remanded the case for a jury trial.
Conclusion
Courts have struggled with the analysis of causation where multiple perils combine in a sequence of events to cause a loss. It is not difficult to find an excluded peril as a “cause in fact” somewhere in the chain of events so the efficient proximate cause rule is used to determine if the excluded peril is the dominant cause. California courts will likely be called upon to review the causation issue as a result of the rain, followed by fire, followed by earth movement sequence that is thought to have caused catastrophic losses in California. Insurers should be collecting and developing the scientific and historical data that will be needed to evaluate flood and earth movement exclusions.
—By William A. Webster, Robins Kaplan LLP
William Webster is a Senior Partner in Robins Kaplan's Los Angeles office. Mr. Webster relocated to Los Angeles after 20 years in our Minneapolis office to expand our Insurance and Catastrophic Loss practice and to avoid the perils of freezing temperatures, ice covered roads, frozen water pipes, snow loads, etc. The grass is always greener…
1 California Civil Jury Instructions (CACI) (2017), 2306. Covered and Excluded Risks—Predominant Cause of Loss2 Pieper v. Commercial Underwriters Ins. Co., 69 Cal. Rptr. 2d 551. 557 (Cal. Ct. App. 1997).
3 Cal. Ins. Code §§ 530 , 532.
4 Stankova v. Metropolitan Property & Casualty Ins. Co., 2015 U.S. App. LEXIS 8935 (9th Cir. May 29, 2015).
5 Howell v. State Farm Fire & Casualty Co., 267 Cal. Rptr. 708 (Cal. Ct. App. 1990).
6 Id. at 709.
7 Id. at 716
8 Id. at 717
9 2015 U.S. App. LEXIS 8935 (9th Cir. May 29, 2015)
Related Attorneys
Partner
