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INSURANCE NOTES

California Supreme Court Validate Exclusion Under Efficient Proximate Cause Doctrine

08.01.2005
On February 13, 1998, after heavy rains, a slope above the home of Frank and Carole Julian failed, leading to a landslide. The landslide caused a tree to crash into the Julians' house. Soon thereafter, the Julians presented a claim for the damage to their insurer, Hartford Underwriters Insurance Company ("Hartford").

The Julians had a standard form homeowners insurance policy with Hartford. This "open peril" policy provided in relevant part:

"We [Hartford] insure against risks of direct physical loss to property described in Coverage A [dwelling] and B [other structures] unless the loss is: [] 1. excluded under Section I--Exclusions; or [] 2. caused by [one of several specifically named perils]."

The policy also stated:

"any ensuing loss to property . . . not excluded or excepted in this policy is covered." Hartford investigated the claim. An engineering expert retained by Hartford concluded that a landslide, triggered by heavy rainfall, brought about the damage to the Julians' house. Hartford denied coverage for all but a minor part of the damage suffered by the Julians, pointing to the exclusions in the Julians' policy for acts, errors or omissions in design and construction, earth movement, and weather conditions that "contribute in any way with" another excluded cause or event, in this case a landslide, to produce a loss.[FN1]

After the denial of coverage, the Julians brought suit against Hartford, asserting breach of contract, breach of the covenant of good faith and fair dealing, and intentional infliction of emotional distress. The Julians alleged that the efficient proximate cause of their loss had been third party negligence, weather conditions alone "consisting of sustained rainfall," or collapse not due to flood, and that the policy did not effectively exclude any of these risks. Hartford successfully moved for summary judgment on the ground that the Julians' policy excluded each of the perils that Hartford identified as the possible efficient proximate causes of the loss, i.e., earth movement, third party negligence, and weather conditions that "contribute in any way with" another excluded cause or event, in this case a landslide. Julian v. Hartford Underwriters Insurance Company, 35 Cal.4th 747, 752 (2005).

The Court of Appeal affirmed the trial court's granting of the motion for summary judgment. The Court of Appeal determined that the weather conditions clause did not violate Insurance Code Section 530 [FN2] ("Section 530") or the efficient proximate cause doctrine because the clause plainly excluded weather conditions, and the limited grant of coverage for losses caused by weather conditions that did not "contribute in any way with" another excluded cause or event did not render the clause invalid or turn it into a coverage provision for all losses caused by weather conditions. Julian, supra, 35 Cal.4th at 753. In so holding, the Court of Appeal parted ways with another division of the same appellate district, which a year earlier in Palub v. Hartford Underwriters Ins. Co., 92 Cal.App.4th 645, 648 (2001), had determined that the weather conditions clause violated Insurance Code Section 530 and the efficient proximate cause doctrine. The Supreme Court granted review to resolve this dispute over the validity of the weather conditions clause.

The Supreme Court discussed whether Section 530 and the efficient proximate cause doctrine prohibits an insurer from insuring against some weather conditions, but not others. The Julians argued that Hartford could not draft policy provisions having such an effect. The Julians argued (and the Palub court agreed) that because the Julians' policy provides coverage for losses caused by weather conditions under some conditions, it must cover losses caused by weather conditions under all circumstances or else run afoul of the efficient proximate cause doctrine.

However, the Supreme Court disagreed with the Julians (and the Palub decision). Julian, supra, 35 Cal.4th at 759. The Supreme Court addressed "only" the application of the weather conditions clause to a loss occasioned by a rain-induced landslide. Julian, supra, 35 Cal.4th at 760. The Supreme Court, in citing the Hartford engineer's report attesting that the type of slope failure involved in this case was "always" caused by water, found that the landslide was not an independent causal agent in the Julians' loss. Id. Rather, the Supreme Court found it to be dependent on the weather condition3 of heavy rains. Id. The Supreme Court noted that "given the direct and well-known relationship between rain and landslide, a reasonable insured would understand that the words 'contribute in any way with' connote an intention to exclude rain that induces a landslide." Julian, supra, 35 Cal.4th at 761. Accordingly, to the extent the weather conditions clause excludes the specific peril of rain inducing a landslide, the Supreme Court found no violation of Section 530 or the efficient proximate cause doctrine. Julian, supra, 35 Cal.4th at 760. The Supreme Court affirmed the decision of the Court of Appeal because the policy effectively excludes the perils of earth movement, third party negligence, and rain inducing a landslide, and the Julians produced no evidence that a different peril was the efficient proximate cause of their loss. Id. at 761. The Supreme Court appears to have limited this ruling by stating that it is "only" addressing the application of weather condition clauses involving rain-induced landslides. See, Julian, supra, 35 Cal.4th at 760. However, can Julian be used to exclude other covered perils by combining exclusions with the "contribute in any way" language? We will wait for word from the Court on that.

_________________________ FN1 The exclusions relevant to this opinion provided as follows:

"SECTION I--EXCLUSIONS

1. We do 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 any sequence to the loss: . . . . b. Earth Movement, meaning earthquake including land shock waves or tremors before, during or after a volcanic eruption; landslide; mudflow; earth sinking, rising or shifting . . . . c. Water Damage . . . . 2. We do not insure against loss to property described in Coverages A and B caused by any of the following. However, any ensuing loss to property described in Coverages A and B not excluded or excepted in this policy is covered. a. Weather conditions. However, this exclusion only applies if weather conditions contribute in any way with a cause or event excluded in paragraph 1. above to produce the loss . . . . ."

FN2 California Insurance Code Section 530 incorporates into California law the efficient proximate cause doctrine. Pursuant to the efficient proximate cause doctrine, "When a loss is caused by a combination of a covered and specifically excluded risks, the loss is covered if the covered risk was the efficient proximate cause of the loss," but "the loss is not covered if the covered risk was only a remote cause of the loss, or the excluded risk was the efficient proximate, or predominate cause." (State Farm Fire & Casualty Co. v. Von Der Lieth, 54 Cal.3d 1123, 1131-1132 (1991).)

FN3 Under Section I(2)(a) of the Hartford policy, the weather conditions clause purported to exclude coverage for a loss caused by weather conditions that "contribute[d] in any way with" earth movement, including a landslide.

 

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