Southern Californians impacted by the mudslides that followed the devastating wildfires in Ventura and Santa Barbara may see some light at the end of the tunnel with the big question of whether insurers will cover their mudslide loss. Over the last few week Californians have lost their homes when the rains brought homes down from the mountainsides ravaged by fire. With the vegetation gone, the hills and mountains simply could not hold during the heavy rains and mud flowed downhill at 20 miles per hour at what witnesses can only call a “wall of mud” that consumed homes and lives within its path. For many, this meant losing all worldly possessions when their houses slid down the hillside and were buried in mud. Even the ability to rebuild in the area is a question for many.
After these devastating losses, homeowners found themselves where many insurers indicated that the mudslide/mudflow was not a covered loss and reservation of rights letters were sent to the insureds. Many homeowner policies were written as if to exclude mudslides as a result of fire and then subsequent rains. Only a few insurers stepped up to the plate to say the loss was covered and began paying the claims and their insureds were immediately issued additional living expenses so they could begin recovery. The legal and insurance community in California, well aware of Howell v. State Farm Fire & Casualty Company,1 have been waiting on insurers to step up and cover the mudslides excluded from their policies because the policies as written with the exclusions were contrary to California case law.
In Howell, the property owner made a claim for landslide damage to her property following heavy rains. The insurer denied the claim because the policy excluded coverage for earth movement and water damage. The property owner presented expert testimony that the landslide occurred due to a fire, which was covered under the policy and which destroyed vegetation on the slope the summer before the landslide. The California Court of Appeal concluded that an insurer providing coverage under a property insurance policy may not contractually exclude coverage when an insured peril (such as fire) is the efficient proximate cause of a loss, regardless of other contributing causes.2 The appellate court found that because fire was the efficient proximate cause of the mudslide, the policy exclusion for damage caused by mudslide was not enforceable.3
On January 29, 2018, the California Department of Insurance issued a statement and an opinion that the recent Thomas fire was the efficient proximate cause of the California mudslides and therefore the mudslide losses in Santa Barbara County are covered regardless of exclusions.
Under the Department of Insurance’s analysis, it is implied that insurance policies written to exclude these mudflow/mudslide losses to homes within the Thomas Fire vicinity are contrary to California Insurance Code Section 530 and Julian v. Hartford Underwriters Insurance Company,4 where the efficient proximate cause doctrine is the “preferred method of resolving first party insurance disputes involving losses caused by multiple risks or perils, at least one of which is covered by insurance and one is not.” The insurance claims process for those victims of the Thomas Fire and subsequent mudslides will find that rebuilding is a long way off but the Department of Insurance’s notice gives insurers a great deal to think about and whether their policies and the written exclusions are proper.
1 Howell v. State Farm Fire & Casualty Co., 218 Cal.App.3d 1446 (1990).
2 Id. at 1448.
3 Id. at 1452.
4 Julian v. Hartford Underwriters Ins. Co., 35 Cal.4th 747, 753 (2005).