First Party Property Insurance Insures Against the Risk of Loss of Property
Insurance policies are contracts between an insurer and an insured that are designed to provide indemnity from the insurer to the insured. The language of insurance contracts are published in multiple formats with almost an infinite variety of terms and conditions. The Insurance Services Office (ISO) publishes thousands of different forms of insurance policy terms and conditions. Modifications continue as case law in different states require modification of insurance policy wording to fulfill the intent of the drafters.
An insurance contract can be written to contain nearly any terms that the parties choose. For example, in State Farm Fire & Cas.
Co. v. Slade, 747 So. 2d 293, 313 (Ala. 1999), the court stated: “[I]nsurance companies and their insureds are free to agree to any terms in a contract so long as they do not offend some rule of law or contravene public policy.”
People who own property face the risk of losing that property to perils like fire, lightning, windstorm, hail, earthquake, or vandalism. Insurers spread this risk of loss between their customers and make it affordable for individuals to take the risk.
When discussing insurance, it is necessary to understand that the first party is the insured; the second party is the insurer; and the third party is the person making a claim against an insured. Third party or liability insurance is insurance against risks faced by the individual insured for damages he or she may be required to pay as a result of an accident caused by his or her act or omission to act.
Before the California Supreme Court decided Garvey v. State Farm Fire and Casualty Co., 48 Cal. 3d 395, 770 P.2d 704, 257 Cal. Rptr. 292 (Cal. 03/30/1989) thousands of lawsuits were pursued claiming that when a cause of loss not excluded concurred with excluded causes to bring about a loss, the insured would be able to obtain indemnity under a first party property policy. In those cases, if one percent of the cause was covered and 99 percent was excluded, courts would find coverage.
The California Supreme Court put the issue to rest and gave insurers immediate resolution to many pending lawsuits by applying traditional rules of insurance interpretation.
The California Supreme Court noted that in recent years before its 1989 decision some courts have misinterpreted and misapplied its decisions in Sabella v. Wisler (1963) 59 Cal. 2d 21 [27 Cal. Rptr. 689, 377 P.2d 889], and State Farm Mut. Auto. Ins. Co. v. Partridge (1973) 10 Cal. 3d 94 [109 Cal. Rptr. 811, 514 P.2d 123]. In so doing, they have allowed coverage in first party property damage cases under the holding in Partridge by inappropriately using the Partridge concurrent causation approach as an alternative to Sabella‘s efficient proximate cause analysis.
This extension of the analysis in Partridge, a third party liability case, allows coverage under a first party property insurance policy whenever a covered peril is a concurrent proximate cause of the loss, without regard to the application of specific policy exclusion clauses. Such reasoning ignores the criteria set forth in the Insurance Code sections, the relevant analysis in Sabella and the important distinction between property loss coverage under a first party property policy and tort liability coverage under a third party liability insurance policy.
In August 1978, the Garvey plaintiffs noticed that a house addition, built in the early 1960’s, had begun to pull away from the main structure. They also discovered damage to a deck and garden wall.
The Court of Appeal replaced the Sabella term “efficient proximate cause” with the term “moving cause.” Sabella defined “efficient proximate cause” alternatively as the “one that sets others in motion” and as “the predominating or moving efficient cause.” The Supreme Court used the term “efficient proximate cause” (meaning predominating cause) when referring to the Sabella analysis because the Supreme Court believed the phrase “moving cause” can be misconstrued to deny coverage erroneously, particularly when it is understood literally to mean the “triggering” cause.
In Partridge, the insured was covered under both an automobile liability policy and a homeowner’s liability policy with comprehensive personal liability coverage. The insured, after filing the trigger mechanism of his pistol to create a “hair‑trigger” action (such negligence was a covered risk under the homeowner’s property policy), hunted jackrabbits at night from his vehicle. As he drove over rough terrain while waving the gun in his hand (negligent driving was an excluded risk under homeowner’s liability policy), the gun fired and injured a passenger.
First party property coverage issues were not involved. The Supreme Court, in Partridge, concluded by stating, “Although there may be some question whether either of the two causes in the instant case can be properly characterized as the “prime, moving or efficient cause of the accident we believe that coverage under a liability insurance policy is equally available to an insured whenever an insured risk constitutes simply a concurrent proximate cause of the injuries.”
The Supreme Court in Garvey noted that it is important to separate the causation analysis necessary in a first party property loss case from that which must be undertaken in a third party tort liability case.
The term “perils” in traditional property insurance parlance refers to fortuitous, active, physical forces such as fire, lightning, wind, and explosion, which bring about the loss. Thus, the “cause” of loss in the context of a property insurance contract is totally different from that in a liability policy.
This distinction is critical to the resolution of losses involving multiple causes. Frequently property losses occur which involve more than one peril that might be considered legally significant. If one of the causes (perils) arguably falls within the coverage grant ‑‑ commonly either because it is specifically insured (as in a named peril policy) or not specifically excepted or excluded (as in an “all risks” policy) ‑‑ disputes over coverage can arise. The task becomes one of identifying the most important cause of the loss and attributing the loss to that cause.
In the property insurance context, the insurer and the insured can tailor the policy according to the selection of insured and excluded risks and, in the process, determine the corresponding premium to meet the economic needs of the insured.
The Garvey case presented a classic Sabella situation. The Supreme Court concluded that coverage should be determined by a jury under an efficient proximate cause analysis. If the earth movement was the efficient proximate cause of the loss, then coverage would be denied under Sabella. On the other hand, if negligence was the efficient proximate cause of the loss, then coverage exists under Sabella. These issues were jury questions because sufficient evidence was introduced to support both possibilities.
Much of the controversy, and the basis of the Garvey decision, is the California Supreme Court’s decision in Sabella v. Wisler, 59 Cal. 2d 21, 377 P.2d 889, 27 Cal. Rptr. 689 (Cal. 01/17/1963). Defendant J. W. Wisler, the builder of a home found to have been negligently constructed upon an improperly compacted lot, appealed from a judgment in the amount of $8,200 in favor of plaintiff‑owners Luciano and Diane Sabella for extensive damages sustained to their home as a result of subsidence of the supportive and nearby earth.
The construction of the house was undertaken without soil inspection. The trial court found that although there was no appreciable damage to said house until approximately May 1st, 1959, sometime between November 1, 1958, and February 1, 1959, the sewer pipe from the house began to leak at a point near the house, causing the sewer outflow from the house to infiltrate the unstable earth near and below the foundation. In order to be consistent with the finding that the induction of waste water was the cause of the subsidence of the foundation, the finding needed to be interpreted to state that it is the nature of uncompacted fills to settle as the result of their own weight and the weight of objects on the uncompacted fill such as a dwelling and its appurtenances.
However, that the above factors resulting in potential weakness in the supportive earth were triggered to act by the induction of the waste water from the house, causing rapid earth compaction and subsidence, can be construed as an insured against peril. The Sabellas’ home suffered no appreciable damage until the end of the fourth rainy season, which included the landslide‑causing rains in the winter of 1955-1956. It would not seem unreasonable to infer that but for the break in the sewer line, the virtual absence of subsidence damage might have continued for some time.
The breaking of the sewer pipe and consequent induction of quantities of waste water into the improperly compacted fill could be viewed by a trier of fact as an unanticipated external event or casualty, operating to trigger the greatly accelerated action of possibly inherent vices and cause damage to the dwelling.
Because property and liability policies are different, questions continually arose in California as to when a loss occurred for the purposes of a first party property policy. The discovery rule did not seem to be appropriate because it was possible for a loss to occur at a property owned by an absentee landlord who would not learn of the loss for years.
The Sabella, Partridge and Garvey case are worth the time to read as a whole. Garvey’s efficient proximate cause analysis has not been accepted by all courts and all states so the policy wording of homeowners and commercial property policies have been amended in attempts to avoid the concurrent cause doctrine in states that do not follow Garvey.
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© 2020 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts
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