Last Friday, a unanimous panel of the Ninth Circuit held that loss from the excluded peril of mudslide occurring one month after a wildfire could be covered as the “direct” result of the blaze. In Stankova v. Metropolitan Prop. & Cas. Ins. Co., 2015 WL 3429395, 2015 U.S. App. LEXIS 8935 (9th Cir., May 29, 2015), it reached that result even though Arizona has not adopted the efficient proximate cause rule, saying that it did not need to apply that doctrine to determine that the mudslide “could have been directly and proximately caused by the wildfire.” It also blithely ignored anti-concurrent causation (ACC) language, which is given effect in Arizona, as “inconsistent with Arizona’s standard fire insurance policy, which insures against all direct loss by fire.”
The policyholders owned a home with a detached garage in Alpine, Arizona. Beginning on May 29, 2011, eastern parts of the state and western New Mexico were devastated by a massive blaze known as the Wallow Fire – we published a post about an Arizona district court decision concerning business interruption loss that stemmed from that conflagration last month. The fire consumed the detached garage and all of the vegetation on the nearby hillside, but it did not reach the house. On August 6, 2011, however, one month after the Wallow Fire had been contained, there was a mudslide on the hillside, and mud and runoff water from flooding destroyed the home.
The insureds made claim under their homeowners policy. The carrier paid for the loss to the garage, but it denied the claim for the house because the contract of insurance expressly excluded loss attributable to:
Water damage, meaning any loss caused by, resulting from, contributed to or aggravated by . . . flood [or] surface water flooding; and
Earth Movement, meaning any loss caused by, resulting from, contributed to or aggravated by events that include, but are not limited to . . . mudslide
These exclusions were prefaced by ACC language reciting that the carrier did not cover loss “which would not have happened in the absence” of the excluded event “regardless of . . . the cause of the excluded event; . . . other causes of the loss; or . . . whether such causes acted at the same time or in any other sequence with the excluded event to produce or contribute to the loss.”
The insured brought suit, and the district court granted the carrier’s motion for summary judgment. Last week, however, a panel of the Ninth Circuit, consisting of two circuit judges and one district court judge sitting by designation, reversed and remanded the case for trial.
The per curium opinion began by noting that Arizona had never adopted the efficient proximate cause rule and that the state supreme court had explicitly held that “an insurer is permitted to limit its liability unless to do so would be inconsistent with public policy.” The judges then proceeded to decide that the policy language at issue was in effect just that – a violation of public policy!
The court’s noted that Arizona requires that all fire policies conform to the 1943 edition of the New York standard fire policy, which provides that the carrier is insuring “against all direct loss by fire, lightning and by removal from premises endangered by the perils insured against in this policy.” Significantly, the panel omitted the fact that the sentence continues “except as hereinafter provided.” The key question was, therefore, whether the mudslide was “directly” caused by the blaze.
The Court of Appeals found an intermediate level appellate decision from 2002 to be “particularly instructive . . . on this issue.” In that case, an Arizona court had found that mold damage caused by water used to extinguish a fire could be covered as fire damage even though the policy expressly excluded loss due to mold, and it quoted the Applemans’ treatise Insurance Law & Practice for the proposition that fire insurance “is intended to cover every loss, damage or injury proximately caused by fire, and every loss necessarily following directly or immediately from such peril or from the surrounding circumstances, the operation and influence of which could not be avoided.”
In the words of the opinion:
Under the Appleman definition of direct and proximate cause as adopted by Arizona, it is possible that the fire directly caused Stankova’s loss in “an unbroken sequence and connection between” the wildfire and the destruction of the house. 5 J. Appleman at § 3083. A reasonable factfinder could conclude that the destruction of the house was caused by the fire, which likely caused the mudslide, “the operation and influence of which could not be avoided.” Id. at § 3082.
ACC language has been given effect in Arizona, and there was none in the policy at issue in the case that the panel found to be so instructive. That did not trouble the judges, however. Instead, they disposed of the issue in a few sentences in what is basically a postscript to the opinion. In the words of the decision, the ACC provision “is inconsistent with Arizona’s standard fire policy, which insures against all direct loss by fire.” The panel went on to say that “[w]e know of no case which would allow Metropolitan to contract out of the standard fire policy’s purpose so as to exclude coverage for this type of direct loss from fire,” which is an interesting observation given the fact that no court has yet found that the mudslide was, in fact, a direct result of the blaze.