Existing law regulates insurance and the business of insurance in the state. Under existing law, 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. Under existing law, an insurer is not liable for a loss of which the peril insured was only the remote cause.

This bill would require coverage to be provided if a loss or damage results from a combination of perils, one of which is a landslide, mudslide, mudflow, or debris flow, if an insured peril is the efficient proximate cause of the loss or damage and coverage would otherwise be provided for the insured peril. The bill would require coverage to be provided under the same terms and conditions as would be provided for the insured peril. The bill would state that it does not constitute a change in, but is declaratory of, existing law, and that it does not alter or abrogate any coverage or defenses, either in contract or law, that existed prior to January 1, 2019.

Existing law regulates insurance and the business of insurance in the state. Under existing law, 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. Under existing law, an insurer is not liable for a loss of which the peril insured was only the remote cause.

This bill would require coverage to be provided if a loss or damage results from a combination of perils, one of which is a landslide, mudslide, mudflow, or debris flow, if an insured peril is the efficient proximate cause of the loss or damage and coverage would otherwise be provided for the insured peril. The bill would require coverage to be provided under the same terms and conditions as would be provided for the insured peril. The bill would state that it does not constitute a change in, but is declaratory of, existing law, and that it does not alter or abrogate any coverage or defenses, either in contract or law, that existed prior to January 1, 2019.

Existing law regulates insurance and the business of insurance in the state. Under existing law, 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. Under existing law, an insurer is not liable for a loss of which the peril insured was only the remote cause.

This bill would require coverage to be provided if a loss or damage results from a combination of perils, one of which is a landslide, mudslide, mudflow, or debris flow, or other similar earth movement, if an insured peril is the efficient proximate cause of the loss or damage and coverage would otherwise be provided for the insured peril. The bill would require coverage to be provided under the same terms and conditions as would be provided for the insured peril. The bill would state that it does not constitute a change in, but is declaratory of, existing law, and that it does not alter or abrogate any coverage or defenses, either in contract or law, that existed prior to January 1, 2019.

Existing law regulates insurance and the business of insurance in the state. Under existing law, 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. Under existing law, an insurer is not liable for a loss of which the peril insured was only the remote cause.

This bill would require that coverage to be provided if a loss or damage results from a combination of perils, one of which is a landslide, mudslide, mudflow, debris flow, or other similar earth movement, coverage be provided if an insured peril is the efficient proximate cause of the loss or damage and coverage would otherwise be provided for the insured peril. The bill would require coverage to be provided under the same terms and conditions as would be provided for the insured peril. The bill would state that it does not constitute a change in, but is declaratory of, existing law. law, and that it does not alter or abrogate any defenses, either in contract or law, that existed prior to January 1, 2019.

Existing law regulates insurance and the business of insurance in the state. Under existing law, 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. Under existing law, an insurer is not liable for a loss of which the peril insured was only the remote cause.

This bill would provide require that if a loss or damage results from a combination of perils, one of which is a landslide, mudslide, mudflow, debris flow, or other similar earth movement, coverage shall be provided if an insured peril is the efficient proximate cause of the loss or damage. damage and coverage would otherwise be provided for the insured peril. The bill would require coverage to be provided under the same terms and conditions as would be provided for the insured peril. The bill would state that it does not constitute a change in, but is declaratory of, existing law.

Existing law regulates insurance and the business of insurance in the state. Under existing law, 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. Under existing law, an insurer is not liable for a loss of which the peril insured was only the remote cause.

This bill would provide that a policy that does not cover the peril of landslide shall not exclude coverage for any loss or damage attributable to a landslide if the landslide resulting in loss or damage was proximately caused by another covered peril, as provided. if a loss or damage results from a combination of perils, one of which is a landslide, coverage shall be provided if an insured peril is the efficient proximate cause of the loss or damage. The bill would state that it does not constitute a change in, but is declaratory of, existing law.

Existing law regulates insurance and the business of insurance in the state. Under existing law, 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. Under existing law, an insurer is not liable for a loss of which the peril insured was only the remote cause.

This bill would provide that a policy that does not cover the peril of landslide shall not exclude coverage for any loss or damage attributable to a landslide if the landslide resulting in loss or damage was proximately caused by another covered peril, as provided. The bill would state that it does not constitute a change in, but is declaratory of, existing law.

 UNFINISHED BUSINESS  

Bill No: SB 917

Author:

:

Vote:

SENATE INSURANCE COMMITTEE: 8-1, 4/25/18

AYES: Glazer, Galgiani, Hueso, Lara, Mitchell, Newman, Portantino, Roth

NOES: Moorlach

NO VOTE RECORDED: Gaines, Berryhill, Hernandez, Morrell

SENATE FLOOR: 25-11, 5/17/18

AYES: Atkins, Beall, Bradford, Cannella, De León, Dodd, Galgiani, Glazer, Hernandez, Hertzberg, Hill, Hueso, Jackson, Lara, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Skinner, Stern, Wieckowski, Wiener

NOES: Anderson, Bates, Fuller, Gaines, Moorlach, Morrell, Nguyen, Nielsen, Stone, Vidak, Wilk

NO VOTE RECORDED: Allen, Berryhill, Newman

ASSEMBLY FLOOR: 47-22, 8/28/18 - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST:

This bill provides that if loss or damage results from a combination of perils, one of which is a landslide, mudslide, mudflow, or debris flow, an insurer shall provide coverage if an insured peril is the efficient proximate cause of the loss or damage and coverage would otherwise be provided for the insured peril; provides that this is declaratory of existing law

Assembly Amendments

delete the inclusion of “other similar earth movement” from the list of perils that might be covered under the efficient proximate cause doctrine.

ANALYSIS:

Existing law:

1. Provides that an insurer is liable for a loss if the proximate cause of the loss was an insured against peril, but not if the insured against peril was only a remote cause.
2. Provides that if a peril is specially excepted in a contract for insurance and there is a loss which would not have occurred but for such peril, such loss is not covered even though the immediate cause of the loss was a peril that was not excepted.

This bill:

1. Provides that if loss or damage results from a combination of perils, one of which is a landslide, mudslide, mudflow, or debris flow, coverage shall be provided if an insured peril is the efficient proximate cause of the loss or damage and coverage would otherwise be provided for the insured peril.
2. Requires such coverage to be provided under the same terms and conditions as would be provided for the insured peril.
3. Provides that this is declaratory of existing law.

Background

Most residential insurance policies explicitly exclude coverage for landslides and water damage, including mudslides or mudflows. By statute, however, insurers are required to cover non-covered perils if a covered peril was the proximate cause of the loss (Insurance Code Section 530). In practical application, the mudslides that damaged or destroyed hundreds of homes in Montecito in January 2018 would not have happened but for the fire—a covered peril.

Not surprisingly, these issues have been extensively litigated because of the inherent conflict in situations when covered causes and excluded causes join together to produce the same damage. The courts have interpreted the statute to apply an “efficient proximate cause doctrine”: “[W]hen 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.” Julian v. Hartford Underwriters Ins. Co., at 750 (citing State Farm Fire & Casualty Co. v. Von Der Lieth, 54 Cal.3d 1123, 1131-1132 (1991).) In the case of Garvey v. State Farm Fire & Casualty Co., 48 Cal.3d 395, 406 (1989), the California Supreme Court held that there is coverage only if the covered concurrent cause is the efficient proximate cause or predominant cause for the loss. The mere fact that a cause is concurrent does not, in itself, provide coverage if the other concurrent cause is excluded. “Frequently property losses occur which involve more than one peril that might be considered legally significant. . . . The task becomes one of identifying the most important cause of the loss and attributing the loss to that cause.” Id. at 406.

California appellate court decisions have held that insurers may not contract out of the efficient proximate cause doctrine as contrary to California law. ( Howell v. State Farm Fire & Casualty Co., 218 Cal.App.3^rd 1446, 267 Cal.Rptr. 708 1990; Palub v. Hartford Underwriters Insurance Co., 92 Cap.App.4^th 645, 112 Cal.Rptr.2^nd 270 2001)).

Immediately following the mudslides and debris flow in Montecito in January there were conflicting stories in the media about whether or not the damage would be covered by insurance policies that exclude water damage or landslide, causing confusion for those insureds whose homes had been damaged or destroyed. The California Department of Insurance on January 29, 2018, issued a notice to insurers directing them to provide coverage if it was “established that the Thomas fire or another peril covered by the applicable policy was the efficient proximate cause of the damage resulting from these mud slides and other similar events in Santa Barbara following the fire.” The California Department of Forestry and Fire Protection has concluded that the widespread and intense fires burned vegetation which would otherwise have absorbed rainfall and held soils in place, and baked a waxy waterproof layer onto the ground’s surface, leaving the region vulnerable to devastating mudslides and debris flows. Despite initial resistance by some insurers, most insurers have now recognized that the Thomas fire was the efficient proximate cause of the mudslides and are covering the losses.

This bill is intended to provide clarity to homeowners facing similar situations in the future and codify what California courts have interpreted as existing law. The efficient proximate cause doctrine is a legal standard, however, and insurers will almost certainly continue to challenge coverage of losses when causation is less clear than in the present case.

Amendments taken in the Assembly removed the opposition of the American Insurance Association, the Property Casualty Insurers Association of America, the National Association of Mutual Insurance Companies, and the Pacific Association of Domestic Insurance Companies.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 8/28/18)

Consumer Attorneys of California

Rural County Representatives of California

United Policyholders

OPPOSITION: (Verified 8/28/18)

Personal Insurance Federation of California

ARGUMENTS IN SUPPORT: According to the author, this bill will help prevent the confusion in situations such as Montecito where homeowners are left to wonder whether the loss of their largest single asset—their home—will be covered by insurance. Consumer Attorneys of California supports SB 917 because it codifies longstanding California case law dating back to 1963, which requires property insurers to provide coverage whenever an insured peril is the “efficient proximate cause” of a loss.

ARGUMENTS IN OPPOSITION: The Personal Insurance Federation of California opposes SB 917 because they believe the bill as currently drafted does not reflect existing law. They argue the bill appears to require insurers to cover a loss whenever a covered peril is the efficient proximate cause even if there is some other reason that they are not required to provide coverage.

ASSEMBLY FLOOR: 47-22, 8/28/18

AYES: Aguiar-Curry, Arambula, Berman, Bloom, Bonta, Burke, Caballero, Calderon, Carrillo, Chau, Chiu, Chu, Cooley, Daly, Eggman, Friedman, Gabriel, Cristina Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Levine, Limón, Low, Maienschein, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Quirk, Reyes, Rivas, Santiago, Mark Stone, Thurmond, Ting, Weber, Wood, Rendon

NOES: Acosta, Travis Allen, Baker, Bigelow, Brough, Chávez, Chen, Cunningham, Dahle, Flora, Frazier, Harper, Kiley, Lackey, Mathis, Mayes, Obernolte, Patterson, Quirk-Silva, Steinorth, Voepel, Waldron

NO VOTE RECORDED: Cervantes, Choi, Cooper, Fong, Gallagher, Eduardo Garcia, Kamlager-Dove, Melendez, Rodriguez, Rubio, Salas

Prepared by:

8/28/18 21:27:58

**** END ****

SENATE THIRD READING

STR Bill Id:SB 917

Author:(Jackson)

As Amended Ver:August 23, 2018

Majority vote

SENATE VOTE: 25-11

SUMMARY: Proposes to codify current insurance coverage case law with respect to concurrent causation when a covered peril and an excluded peril combine to cause a loss. Specifically, this bill:

1. Provides that if loss or damage results from a combination of perils, one of which is a landslide, mudslide, mudflow, debris flow, coverage shall be provided if an insured peril is the efficient proximate cause of the loss or damage, and coverage would otherwise be provided for the insured peril.
2. States that coverage shall be provided under the same terms and conditions as would be provided for the insured peril.
3. States that the bill does not alter or abrogate any coverage or defenses that exist on the date the bill becomes effective.
4. Provides that this is declaratory of existing law.

EXISTING LAW:

1. Provides that an insurer is liable for a loss if the proximate cause of the loss was an insured against peril, but not if the insured against peril was only a remote cause.
2. Provides that if a peril is specifically excluded in a contract for insurance and there is a loss which would not have occurred but for such peril, such loss is not covered even though the immediate cause of the loss was a peril that was not excluded.

FISCAL EFFECT: Unknown.; the bill is keyed non-fiscal by Legislative Counsel.

COMMENTS:

1. Purpose. According to the author, the bill is intended to clarify current law by codifying existing case law governing concurrent causation in circumstances where one of the causes is expressly excluded from the policy. According to the bill's own terms, this proposed new Insurance Code Section "does not cause a change in, but is declaratory of, existing law."
2. Background. The genesis of the bill is a mud/debris slide that occurred last year in Montecito that damaged dozens of homes. Torrential rains arrived within days of a wildfire that wiped out all of the vegetation on the hills above the homes, and the water loosed the earth that no longer had vegetation to hold it. While mudslides are almost universally an excluded peril, it was clear that the fire was the cause of these mudslides, and it appears that every insured structure is being covered for the damages that resulted from the mudslide. Because the mudslide clearly would not have occurred but for the fire, statutory and case law made it fairly clear in this circumstance that the fire was the "efficient proximate cause" of the damage to the homes.

Because sorting out concurrent causation is inherently fact based, these issues have been extensively litigated due to the inherent conflict in situations when causation from a covered peril and causation from an excluded peril join together to produce the damage. The courts have interpreted the statute to apply an "efficient proximate cause doctrine": "[W]hen 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." Julian v. Hartford Underwriters Ins. Co., at 750 (citing State Farm Fire & Casualty Co. v. Von Der Lieth, 54 Cal.3d 1123, 1131-1132 (1991).) In the case of Garvey v. State Farm Fire & Casualty Co., 48 Cal.3d 395, 406 (1989), the California Supreme Court held that there is coverage only if the covered concurrent cause is the efficient proximate cause or predominant cause for the loss. The mere fact that a cause is concurrent does not, in itself, provide coverage if the other concurrent cause is excluded. According to the Supreme Court in Garvey, "Frequently property losses occur which involve more than one peril that might be considered legally significant. . . . The task becomes one of identifying the most important cause of the loss and attributing the loss to that cause."

Conflicting stories in the media in the immediate aftermath of the mudslides raised concerns about whether or not the damage would be covered by insurance policies that contained the standard exclusions. These early concerns appear to be at least part of the motivation for the bill. However, as noted above, it does not appear that any claim resulting from this disaster has been denied.

1. "Coverage shall be provided" vs "may not be denied". The current version of the bill provides that "coverage shall be provided" if the covered peril is the efficient proximate cause of the loss. Insurers contend that this language is overbroad, and could be interpreted to expand coverage by eliminating other bases (such as fraud by the policyholder, or lapse of the policy) upon which an insurer would under current law be entitled to deny a claim. In this respect, the insurers are essentially arguing that the bill does not actually do what it purports to do – codify existing case law without changing the law. Proponents disagree. Thus, proponents claim that the bill accomplishes its goal of codifying current case law, while opponents are concerned that the bill in fact changes, or at least risks extensive litigation to prove otherwise, current case law. In light of the complexity and fact-based nature of current case law on this issue, it is impossible to determine how courts would ultimately rule in any specific dispute. However, the primary concern expressed about the "shall provide coverage" language is that it might be interpreted to eliminate existing defenses that an insurer may have. Language adopted in the Insurance Committee expressly addresses defenses by declaring that the bill does not alter or abrogate any defenses that exist on the date the bill becomes effective.

Opponents further point out that efforts to codify case law – and in particular, complex, fact-based case law – are inherently fraught with problems. There are really only two possible consequences: a) the bill accomplishes no actual change in the law, but adds litigation risk as parties battle with respect to future disputes to clarify whether, or to what extent, changes to current case law may have been made; b) the bill unintentionally makes changes that a court interprets to change or alter the results of prior case law. Is the risk of unintentional and undetermined change to existing law worth the risk for a bill that expresses the intent to not change the existing law?

1. Legislative declarations. It is not uncommon to see bill language that the effect of the bill "does not cause a change in, but is declaratory of, existing law." Whether the "existing law" is statutory, and the bill author believes courts or administrative agencies have misapplied what was already the law, or whether the bill author, as here, is attempting to take case law and "statutize" it, courts are not bound by the Legislature's declared opinion on the effect of the new statute in comparison to existing law. The codified statute stands on its own, and courts may, and should, consider the Legislature's non-codified declaration, but ultimately must consider all factors presented by litigants, and come to an independent determination with respect to any specific issue in a particular case. Thus the non-codified declaration in this bill may be helpful, but is not ultimately determinative of the concerns expressed by opponents about unintended consequences.

Analysis Prepared by: Mark Rakich / INS. / (916) 319-2086 FN: 0004658

SENATE THIRD READING

STR Bill Id:SB 917

Author:(Jackson)

As Amended Ver:July 2, 2018

Majority vote

SENATE VOTE: 25-11

SUMMARY: Proposes to codify current insurance coverage case law with respect to concurrent causation when a covered peril and an excluded peril combine to cause a loss. Specifically, this bill:

1. Provides that if loss or damage results from a combination of perils, one of which is a landslide, mudslide, mudflow, debris flow, or other similar earth movement, coverage shall be provided if an insured peril is the efficient proximate cause of the loss or damage, and coverage would otherwise be provided for the insured peril.
2. States that coverage shall be provided under the same terms and conditions as would be provided for the insured peril.
3. States that this bill does not alter or abrogate any defenses that exist on the date this bill becomes effective.
4. Provides that this is declaratory of existing law.

EXISTING LAW:

1. Provides that an insurer is liable for a loss if the proximate cause of the loss was an insured against peril, but not if the insured against peril was only a remote cause.
2. Provides that if a peril is specifically excluded in a contract for insurance and there is a loss which would not have occurred but for such peril, such loss is not covered even though the immediate cause of the loss was a peril that was not excluded.

FISCAL EFFECT: Unknown. This bill is keyed non-fiscal by the Legislative Counsel.

COMMENTS:

1. Purpose. According to the author, this bill is intended to clarify current law by codifying existing case law governing concurrent causation in circumstances where one of the causes is expressly excluded from the policy. According to this bill's own terms, this proposed new Insurance Code Section "does not cause a change in, but is declaratory of, existing law."
2. Background. The genesis of this bill is a mud/debris slide that occurred last year in Montecito that damaged dozens of homes. Torrential rains arrived within days of a wildfire that wiped out all of the vegetation on the hills above the homes, and the water loosed the earth that no longer had vegetation to hold it. While mudslides are almost universally an excluded peril, it was clear that the fire was the cause of these mudslides, and it appears that every insured structure is being covered for the damages that resulted from the mudslide. Because the mudslide clearly would not have occurred but for the fire, statutory and case law made it fairly clear in this circumstance that the fire was the "efficient proximate cause" of the damage to the homes.

Because sorting out concurrent causation is inherently fact based, these issues have been extensively litigated due to the inherent conflict in situations when causation from a covered peril and causation from an excluded peril join together to produce the damage. The courts have interpreted the statute to apply an "efficient proximate cause doctrine": "[W]hen 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." Julian v. Hartford Underwriters Ins. Co., at 750 (citing State Farm Fire & Casualty Co. v. Von Der Lieth, 54 Cal.3d 1123, 1131-1132 (1991).) In the case of Garvey v. State Farm Fire & Casualty Co., 48 Cal.3d 395, 406 (1989), the California Supreme Court held that there is coverage only if the covered concurrent cause is the efficient proximate cause or predominant cause for the loss. The mere fact that a cause is concurrent does not, in itself, provide coverage if the other concurrent cause is excluded. According to the Supreme Court in Garvey, "Frequently property losses occur which involve more than one peril that might be considered legally significant. . . . The task becomes one of identifying the most important cause of the loss and attributing the loss to that cause."

Conflicting stories in the media in the immediate aftermath of the mudslides raised concerns about whether or not the damage would be covered by insurance policies that contained the standard exclusions. These early concerns appear to be at least part of the motivation for this bill. However, as noted above, it does not appear that any claim resulting from this disaster has been denied.

1. "Coverage shall be provided" vs "may not be denied". The current version of this bill provides that "coverage shall be provided" if the covered peril is the efficient proximate cause of the loss. Insurers contend that this language is overbroad, and could be interpreted to expand coverage by eliminating other bases (such as fraud by the policyholder, or lapse of the policy) upon which an insurer would under current law be entitled to deny a claim. In this respect, the insurers are essentially arguing that this bill does not actually do what it purports to do – codify existing case law without changing the law. Proponents disagree. Thus, proponents claim that this bill accomplishes its goal of codifying current case law, while opponents are concerned that this bill in fact changes, or at least risks extensive litigation to prove otherwise, current case law. In light of the complexity and fact-based nature of current case law on this issue, it is impossible to determine how courts would ultimately rule in any specific dispute. However, the primary concern expressed about the "shall provide coverage" language is that it might be interpreted to eliminate existing defenses that an insurer may have. Language adopted in the Insurance Committee expressly addresses defenses by declaring that this bill does not alter or abrogate any defenses that exist on the date this bill becomes effective.

Opponents further point out that efforts to codify case law – and in particular, complex, fact-based case law – are inherently fraught with problems. There are really only two possible consequences: 1) this bill accomplishes no actual change in the law, but adds litigation risk as parties battle with respect to future disputes to clarify whether, or to what extent, changes to current case law may have been made; 2) this bill unintentionally makes changes that a court interprets to change or alter the results of prior case law. Is the risk of unintentional and undetermined change to existing law worth the risk for a bill that expresses the intent to not change the existing law?

1. Legislative declarations. It is not uncommon to see bill language that the effect of this bill "does not cause a change in, but is declaratory of, existing law." Whether the "existing law" is statutory, and this bill author believes courts or administrative agencies have misapplied what was already the law, or whether this bill author, as here, is attempting to take case law and "statutize" it, courts are not bound by the Legislature's declared opinion on the effect of the new statute in comparison to existing law. The codified statute stands on its own, and courts may, and should, consider the Legislature's non-codified declaration, but ultimately must consider all factors presented by litigants, and come to an independent determination with respect to any specific issue in a particular case. Thus the non-codified declaration in this bill may be helpful, but is not ultimately determinative of the concerns expressed by opponents about unintended consequences.

Analysis Prepared by: Mark Rakich / INS. / (916) 319-2086 FN: 0003674

Date of Hearing: June 27, 2018

ASSEMBLY COMMITTEE ON INSURANCE

Tom Daly, Chair

SBPCA Bill Id:SB 917

Author:(Jackson) – As Amended Ver:May 1, 2018

SENATE VOTE: 25-11

SUBJECT: Insurance losses; concurrent causation

SUMMARY: Proposes to codify current insurance coverage case law with respect to concurrent causation when a covered peril and an excluded peril combine to cause a loss. Specifically, this bill:

1. Provides that if loss or damage results from a combination of perils, one of which is a landslide, mudslide, mudflow, debris flow, or other similar earth movement, coverage shall be provided if an insured peril is the efficient proximate cause of the loss or damage, and coverage would otherwise be provided for the insured peril.
   
2. States that coverage shall be provided under the same terms and conditions as would be provided for the insured peril.
   
3. Provides that this is declaratory of existing law.
   

EXISTING LAW:

1. Provides that an insurer is liable for a loss if the proximate cause of the loss was an insured against peril, but not if the insured against peril was only a remote cause.
   
2. Provides that if a peril is specifically excluded in a contract for insurance and there is a loss which would not have occurred but for such peril, such loss is not covered even though the immediate cause of the loss was a peril that was not excluded.
   

FISCAL EFFECT: Undetermined; the bill is designated non-fiscal by Legislative Counsel.

COMMENTS:

1. Purpose. According to the author, the bill is intended to clarify current law by codifying existing case law governing concurrent causation in circumstances where one of the causes is expressly excluded from the policy. According to the bill’s own terms, this proposed new Insurance Code Section “does not cause a change in, but is declaratory of, existing law.”
2. Background. The genesis of the bill is a mud/debris slide that occurred last year in Montecito that damaged over 100 homes. Torrential rains arrived within days of a wildfire that wiped out all of the vegetation on the hills above the homes, and the water loosed the earth that no longer had vegetation to hold it. While mudslides are almost universally an excluded peril, it was clear that the fire was the cause of these mudslides, and it appears that every insured structure is being covered for the damages that resulted from the mudslide. Because the mudslide clearly would not have occurred but for the fire, statutory and case law made it fairly clear in this circumstance that the fire was the “efficient proximate cause” of the damage to the homes.
   
   Because sorting out concurrent causation is inherently fact based, these issues have been extensively litigated due to the inherent conflict in situations when causation from a covered peril and causation from an excluded peril join together to produce the damage. The courts have interpreted the statute to apply an “efficient proximate cause doctrine”: “[W]hen 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.” Julian v. Hartford Underwriters Ins. Co., at 750 (citing State Farm Fire & Casualty Co. v. Von Der Lieth, 54 Cal.3d 1123, 1131-1132 (1991).) In the case of Garvey v. State Farm Fire & Casualty Co., 48 Cal.3d 395, 406 (1989), the California Supreme Court held that there is coverage only if the covered concurrent cause is the efficient proximate cause or predominant cause for the loss. The mere fact that a cause is concurrent does not, in itself, provide coverage if the other concurrent cause is excluded. According to the Supreme Court in Garvey, “Frequently property losses occur which involve more than one peril that might be considered legally significant. . . . The task becomes one of identifying the most important cause of the loss and attributing the loss to that cause.”
   
   Insurers are not authorized to alter this “efficient proximate cause” doctrine by policy language because California appellate court decisions have held that to do so would be contrary to California law. ( Howell v. State Farm Fire & Casualty Co., 218 Cal.App.3^rd 1446, 267 Cal.Rptr. 708 1990; Palub v. Hartford Underwriters Insurance Co., 92 Cap.App.4^th 645, 112 Cal.Rptr.2^nd 270 2001)).
   
   Conflicting stories in the media in the immediate aftermath of the mudslides raised concerns about whether or not the damage would be covered by insurance policies that contained the standard exclusions. These early concerns appear to be at least part of the motivation for the bill. However, as noted above, it does not appear that any claim resulting from this disaster has been denied.
3. Coverage “shall be provided” vs “may not be denied”. The current version of the bill provides that “coverage shall be provided” if the covered peril is the efficient proximate cause of the loss. Insurers contend that this language is overbroad, and could be interpreted to expand coverage by eliminating other bases (such as fraud by the policyholder, or lapse of the policy) upon which an insurer would under current law be entitled to deny a claim. In this respect, the insurers are essentially arguing that the bill does not actually do what it purports to do – codify existing case law without changing the law. Proponents disagree. Thus, proponents claim that the bill accomplishes its goal of codifying current case law, while opponents are concerned that the bill in fact changes, or at least risks extensive litigation to prove otherwise, current case law. In light of the complexity and fact-based nature of current case law on this issue, it is impossible to determine how courts would ultimately rule in any specific dispute.
   
   Efforts to codify case law – and in particular, complex, fact-based case law – are inherently fraught with problems. There are really only two possible consequences: 1) the bill accomplishes no actual change in the law, but adds litigation risk as parties battle with respect to future disputes to clarify whether, or to what extent, changes to current case law may have been made; 2) the bill unintentionally makes changes that a court interprets to change or alter the results of prior case law. Is the risk of unintentional and undetermined change to existing law worth the risk for a bill that expresses the intent to not change existing law?
4. Legislative Declarations. It is not uncommon to see bill language that the effect of the bill “does not cause a change in, but is declaratory of, existing law.” Whether the “existing law” is statutory, and the bill author believes courts or administrative agencies have misapplied what was already the law, or whether the bill author, as here, is attempting to take case law and “statutize” it, courts are not bound by the Legislature’s declared opinion on the effect of the new statute in comparison to existing law. The codified statute stands on its own, and courts may, and should, consider the Legislature’s non-codified declaration, but ultimately must consider all factors presented by litigants, and come to an independent determination with respect to any specific issue in a particular case. Thus the non-codified declaration in this bill may be helpful, but is not ultimately determinative of the concerns expressed by opponents about unintended consequences.
5. Recent Legislation. Earlier this year, this Committee considered AB 2594 (Friedman) which, as introduced, proposed to accomplish 2 things: first, the bill proposed to extend a statute of limitations from 12 to 24 months; second, the bill proposed to codify existing case law rules that governed when the running of that statute of limitations would be tolled. At the request of the Committee, the author deleted the provisions proposing to codify existing case law. The Committee’s request was for the same reasons discussed above – why tinker with accepted rules when the only result is either no change in the law, or accidental unintended changes of law that was not intended to be changed? Should the Committee continue to follow the same principles with respect to SB 917 as it followed with AB 2594?

REGISTERED SUPPORT / OPPOSITION:

Support

Rural County Representatives of California (RCRC)

Santa Barbara County Board of Supervisors

Opposition

American Insurance Association

National Association of Mutual Insurance Companies

Pacific Association of Domestic Insurance Companies

Personal Insurance Federation of California

Property Casualty Insurers Association of America

Analysis Prepared by: Mark Rakich / INS. / (916) 319-2086

 THIRD READING  

Bill No: SB 917

Author:

: 5/1/18

Vote:

SENATE INSURANCE COMMITTEE: 8-1, 4/25/18

AYES: Glazer, Galgiani, Hueso, Lara, Mitchell, Newman, Portantino, Roth

NOES: Moorlach

NO VOTE RECORDED: Gaines, Berryhill, Hernandez, Morrell

SUBJECT:

SOURCE: Author

DIGEST:

This bill provides that if loss or damage results from a combination of perils, one of which is a landslide, mudslide, mudflow, debris flow or other similar earth movement, an insurer shall provide coverage if an insured peril is the efficient proximate cause of the loss or damage and coverage would otherwise be provided for the insured peril; and provides that this is declaratory of existing law.

ANALYSIS:

Existing law:

1. Provides that an insurer is liable for a loss if the proximate cause of the loss was an insured against peril, but not if the insured against peril was only a remote cause.
2. Provides that if a peril is specially excepted in a contract for insurance and there is a loss which would not have occurred but for such peril, such loss is not covered even though the immediate cause of the loss was a peril that was not excepted.

This bill:

1. Provides that if loss or damage results from a combination of perils, one of which is a landslide, mudslide, mudflow, debris flow or other similar earth movement, coverage shall be provided if an insured peril is the efficient proximate cause of the loss or damage and coverage would otherwise be provided for the insured peril.
2. Requires such coverage to be provided under the same terms and conditions as would be provided for the insured peril.
3. Provides that this is declaratory of existing law.

Background

Most residential insurance policies explicitly exclude coverage for landslides and water damage, including mudslides or mudflows. By statute, however, insurers are required to cover non-covered perils if a covered peril was the proximate cause of the loss (Insurance Code Section 530). In practical application, the mudslides that damaged or destroyed hundreds of homes in Montecito in January 2018 would not have happened but for the fire—a covered peril.

Not surprisingly, these issues have been extensively litigated because of the inherent conflict in situations when covered causes and excluded causes join together to produce the same damage. The courts have interpreted the statute to apply an “efficient proximate cause doctrine”: “[W]hen 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.” Julian v. Hartford Underwriters Ins. Co., at 750 (citing State Farm Fire & Casualty Co. v. Von Der Lieth, 54 Cal.3d 1123, 1131-1132 (1991).) In the case of Garvey v. State Farm Fire & Casualty Co., 48 Cal.3d 395, 406 (1989), the California Supreme Court held that there is coverage only if the covered concurrent cause is the efficient proximate cause or predominant cause for the loss. The mere fact that a cause is concurrent does not, in itself, provide coverage if the other concurrent cause is excluded. “Frequently property losses occur which involve more than one peril that might be considered legally significant. …The task becomes one of identifying the most important cause of the loss and attributing the loss to that cause.” Id. at 406.

California appellate court decisions have held that insurers may not contract out of the efficient proximate cause doctrine as contrary to California law. (Howell v. State Farm Fire & Casualty Co., 218 Cal.App.3rd 1446, 267 Cal.Rptr. 708 1990; Palub v. Hartford Underwriters Insurance Co., 92 Cal.App.4th 645, 112 Cal.Rptr.2nd 270 2001)).

Immediately following the mudslides and debris flow in Montecito in January there were conflicting stories in the media about whether or not the damage would be covered by insurance policies that exclude water damage or landslide, causing confusion for those insureds whose homes had been damaged or destroyed. The California Department of Insurance on January 29, 2018, issued a notice to insurers directing them to provide coverage if it was “established that the Thomas fire or another peril covered by the applicable policy was the efficient proximate cause of the damage resulting from these mud slides and other similar events in Santa Barbara following the fire.” CAL FIRE has concluded that the widespread and intense fires burned vegetation which would otherwise have absorbed rainfall and held soils in place, and baked a waxy waterproof layer onto the ground’s surface, leaving the region vulnerable to devastating mudslides and debris flows. Despite initial resistance by some insurers, most insurers have now recognized that the Thomas fire was the efficient proximate cause of the mudslides and are covering the losses.

This bill is intended to provide clarity to homeowners facing similar situations in the future and codify what California courts have interpreted as existing law. The efficient proximate cause doctrine is a legal standard, however, and insurers will almost certainly continue to challenge coverage of losses when causation is less clear than in the present case.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 5/17/18)

California State Association of Electrical Workers

Coalition of California Utility Employees

Consumer Attorneys of California

Rural County Representatives of California

United Policyholders

Working Families for Affordable Insurance

OPPOSITION: (Verified 5/2/18)

American Insurance Association

National Association of Mutual Insurance Companies

Pacific Association of Domestic Insurance Companies

Personal Insurance Federation of California

Property Casualty Insurers Association of America

ARGUMENTS IN SUPPORT: According to the author, this bill will help prevent the confusion in situations such as Montecito where homeowners are left to wonder whether the loss of their largest single asset—their home—will be covered by insurance. Consumer Attorneys of California supports SB 917 because it codifies longstanding California case law dating back to 1963, which requires property insurers to provide coverage whenever an insured peril is the “efficient proximate cause” of a loss.

ARGUMENTS IN OPPOSITION: The state’s largest insurance trade organizations oppose SB 917 unless it is amended because they believe the bill, as currently drafted, does not reflect existing law. They argue the bill appears to require insurers to cover a loss whenever a covered peril is the efficient proximate cause even if there is some other reason that they are not required to provide coverage.

Prepared by:

5/17/18 9:00:19

**** END ****

SENATE COMMITTEE ON INSURANCE

Senator Steven Glazer, Chair

2017 - 2018 Regular

Bill No: SB 917 Hearing Date: April 25, 2018

Subject: Insurance policies

SUMMARY

Provides that if loss or damage results from a combination of perils, one of which is a landslide, coverage shall be provided if an insured peril is the efficient proximate cause of the loss or damage, and specifies it is declaratory of existing law.

DIGEST

Existing law

1. Provides that an insurer is liable for a loss if the proximate cause of the loss was an insured against peril, but not if the insured against peril was only a remote cause.
2. Provides that if a peril is specially excepted in a contract for insurance and there is a loss which would not have occurred but for such peril, such loss is not covered even though the immediate cause of the loss was a peril that was not excepted.
   

This bill

1. Provides that if loss or damage results from a combination of perils, one of which is a landslide, coverage shall be provided if an insured peril is the efficient proximate cause of the loss or damage.
2. Provides that this is declaratory of existing law.
   

COMMENTS

1. Purpose of the bill To clarify that property insurance policies shall cover losses caused by landslides for which the efficient proximate cause is a covered peril.
   
2. Background Most residential insurance policies explicitly exclude coverage for landslides and water damage, including mudslides or mudflows. By statute, however, insurers are required to cover non-covered perils if a covered peril was the proximate cause of the loss (Insurance Code Section 530). At the same time, an insurer can specifically exempt a peril, and if the loss would not have happened but for that excepted peril, the loss is not covered even if the immediate cause of the loss was a covered peril. In practical application, the mudslides that damaged or destroyed hundreds of homes in Montecito in January 2018 would not have happened but for the fire—a covered peril.

Not surprisingly, these issues have been extensively litigated because of the inherent conflict in situations when covered causes and excluded causes join together to produce the same damage. The courts have interpreted the statute to apply an “efficient proximate cause doctrine”: “[W]hen 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.” Julian v. Hartford Underwriters Ins. Co., at 750 (citing State Farm Fire & Casualty Co. v. Von Der Lieth, 54 Cal.3d 1123, 1131-1132 (1991).) In the case of Garvey v. State Farm Fire & Casualty Co., 48 Cal.3d 395, 406 (1989), the California Supreme Court held that there is coverage only if the covered concurrent cause is the efficient proximate cause or predominant cause for the loss. The mere fact that a cause is concurrent does not, in itself, provide coverage if the other concurrent cause is excluded. “Frequently property losses occur which involve more than one peril that might be considered legally significant. . . . The task becomes one of identifying the most important cause of the loss and attributing the loss to that cause.” Id. at 406.

California appellate court decisions have held that insurers may not contract out of the efficient proximate cause doctrine as contrary to California law. ( Howell v. State Farm Fire & Casualty Co., 218 Cal.App.3^rd 1446, 267 Cal.Rptr. 708 1990; Palub v. Hartford Underwriters Insurance Co., 92 Cap.App.4^th 645, 112 Cal.Rptr.2^nd 270 2001)).

Immediately following the mudslides and debris flow in Montecito, there were conflicting stories in the media about whether or not the damage would be covered by insurance policies that exclude water damage or landslide, causing confusion for those insureds whose homes had been damaged or destroyed. The California Department of Insurance (CDI) on January 29, 2018 issued a notice to insurers directing them to provide coverage if it was “established that the Thomas fire or another peril covered by the applicable policy was the efficient proximate cause of the damage resulting from these mud slides and other similar events in Santa Barbara following the fire.” Despite initial resistance by some insurers, most insurers have now recognized that the Thomas fire was the efficient proximate cause of the mudslides and are covering the losses. In fact, CalFire has concluded that the widespread and intense fires burned vegetation which would otherwise have absorbed rainfall and held soils in place, and baked a waxy waterproof layer onto the ground’s surface, leaving the region vulnerable to devastating mudslides and debris flows.

This bill is intended to provide clarity to homeowners facing similar situations in the future and codify what California courts have interpreted as existing law. The efficient proximate cause doctrine is a legal standard, however, and insurers will almost certainly continue to challenge coverage of losses when causation is less clear than in the present case.

1. Support According to the author, this bill will help prevent the confusion in situations such as Montecito where homeowners are left to wonder whether the loss of their largest single asset—their home—will be covered by insurance. United Policyholders supports SB 917 because it will help policyholders avoid unnecessary disputes with their insurers and reflects the reality that there is no insurance product that can be purchased specifically to cover this risk. The Consumer Attorneys of California supports SB 917 because it codifies longstanding California case law dating back to 1963, which requires property insurers to provide coverage whenever an insured peril is the “efficient proximate cause” of a loss. The language in the bill comes directly from Howell v. State Farm, 218 Cal.App.3^rd 1446 (1990) and Garvey v. State Farm, 48 Cal.3d 395 (1989).
2. Opposition The state’s largest insurance trade organizations oppose SB 917 unless it is amended because they believe the bill as currently drafted does not reflect existing law. They argue the bill appears to require insurers to cover a loss whenever a covered peril is the efficient proximate cause even if there is some other reason that they are not required to provide coverage, such as if there has been fraud or concealment by the insured, or other legal and enforceable policy terms or conditions that would void coverage. This could lead to increased costs for all policyholders, or a decision by insurers to limit their books of homeowners insurance.
   
3. Questions The opponents argue that the language proposed in SB 917, in saying that “coverage shall be provided” might create coverage where none existed before, for example if the policy contained some other exclusions, limitations or conditions that nullified coverage. They say the courts have said that whether there is coverage is a question of fact. Or is the question of fact whether a covered peril is the “efficient proximate cause” of the loss? The court cases cited, and the underlying statute, Insurance Code Section 530, state that there is liability if there is a finding that a covered peril was the efficient proximate cause of a loss, but they do not supersede other liability defenses such as fraud by the insured. The opposition has requested the language be changed to “coverage may not be denied on the ground that the landslide is not a covered risk.” The CDI supports the current bill language and cites the current statute, Insurance Code section 530, which states “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….” The statute does not say “an insurer may not deny coverage if….” Under an insurance policy the insurer is making an affirmative promise to provide coverage subject to the contract and insurance laws, not making a promise not to deny coverage. Should the language be changed per the opponents’ request? The language proposed below would clarify that coverage for the covered and uncovered peril are the same. Under the efficient proximate cause doctrine, the insurer would only be liable if the insurer would otherwise have been liable for the covered peril, preserving an insurer’s defenses in the case of fraud or other condition that would have voided coverage under the policy.
   
4. Suggested Amendment

Replace existing language with the following: 530.5 If a loss or damage results from a combination of perils, one of which is a landslide, mudslide, mudflow, debris flow, or other similar earth movement, coverage shall be provided if an insured peril is the efficient proximate cause of the loss or damage and coverage would otherwise have been provided for the insured peril.  Coverage shall be provided under the same terms and conditions as the insured peril.  

POSITIONS

Support

Consumer Attorneys of California

Rural County Representatives of California

United Policyholders

Oppose Unless Amended

American Insurance Association

National Association of Mutual Insurance Companies

Pacific Association of Domestic Insurance Companies

Personal Insurance Federation of California

Property Casualty Insurers Association of America

-- END --