Aftermath of the Montecito Mudslides – Determining Insurance Coverage and Navigating Policy Exclusions
By Cory Baker
Post-Wildfire “Perils” and Property Damage
Wildfires dramatically change the landscape and ground conditions, which can lead to the increased risk of flooding even with light rains. Natural, unburned vegetation and soil normally act as a sponge during a rainfall event. However, wildfires create physical changes in the landscape. The heat from a fire can bake the ground, creating a surface that will not absorb water, thereby increasing the speed with which water flows off the slope. When these normal and protective functions are compromised or eliminated by a severe wildfire, the potential for significant erosion, flooding, and debris flows is magnified.
Soon after the December 2017 Thomas Fire, residents and business owners of Montecito, and areas of Santa Barbara and Ventura County were faced with destruction as a result of flooding, mudslides, and mudflow. Many of the properties destroyed were in close proximity to the Thomas Fire, which calls into question whether property damage is attributed to the Thomas Fire or these other perils.
Policy Coverage, Exclusions, and “Efficient Proximate Cause”
While some property owners are asking when insurance coverage will kick in, most property owners are faced with asking: what is actually covered under my insurance policy? Although property/casualty insurers may have a duty to cover damages from the recent mudslide and debris flows, this duty only arises if it is determined that the burning of hillsides and vegetation by the Thomas and other fires was the efficient proximate cause of the mudslides. However, if the resulting destruction was caused independently by flooding, mudslide, and/or mudflow, such claims are typically excluded. So, the threshold issue for property owners is whether loss was caused by the Thomas Fire or by a separate contributing peril.
In California, the efficient proximate cause doctrine is used when loss is attributable to concurrent perils (i.e., both covered and excluded perils). Ultimately, this means that policy coverage comes down to the predominant cause of the loss, that is:
- if the predominant cause is a covered peril, the loss is covered by the policy, even if other non-covered causes contributed to it; but
- if the predominant cause is an excluded peril, the loss is not covered.
For Montecito, Santa Barbara, and Ventura County property owners, if it is shown that the Thomas Fire—a covered peril—caused the subsequent mudslides, then damage caused by those events should be covered under a property owner’s insurance policy. Yet, determining coverage will require an in-depth analysis of the cause of the damage and broad interpretations of policy language.
Causation and the “Separate and Distinct” Standard
Since causation is the threshold issue in most policy coverage claims, the efficient proximate cause is more commonly viewed as the most important cause. This shift in analysis is used to weed out claims based on remote causes. However, in cases where concurrent perils contributed to the loss, insurance coverage may still be afforded. While there is no coverage where the insured peril is only a remote cause of the loss, coverage is not precluded just because an excluded peril contributed to a loss. Thus, if an excluded peril was only a remote cause of the loss, property owners may still be covered based on non-excluded perils.
So, how will insurance companies determine the cause of property loss? Answering this question requires extensive evidence gathering to determine whether the perils attributable to the property loss were actually “separate or distinct.” According to California case law, to be separate or distinct, each peril must “under some circumstances, have occurred independently of the other and caused damage.”
Expanding Policy Language
On January 22, 2018, Senate bill, SB 917 was introduced, which proposed to add Section 530.5 to the Insurance Code. SB 917 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.”
This raises the issue: whether policy language should be expanded—or at the very least, be broadly interpreted—to cover damage that is caused by excluded perils (i.e., landslide, mudslide, or mudflow) that are directly attributable to another covered peril (i.e., the Thomas Fire). In turn, SB 917 would mean that the Montecito mudslides can be attributed to the Thomas Fire and cannot be excluded from coverage. Fortunately for many property owners, many advocates have been working to recognize these coverage gaps and identify policy language to help property owners recover.
What to do Next?
While the cause of the Thomas Fire and January 9, 2018 mudslides is still being investigated, homeowners should do the following:
- Identify and locate any property/casualty insurance policies;
- Gather evidence of damage/loss (i.e. photographs, video, eye-witness reports); and
- Get in touch with your insurance carrier to file a claim for recovery.
 Insurance Code section 530 sets forth the efficient proximate cause doctrine, an interpretive rule for first party insurance disputes. The California Supreme Court and other California Appellate Courts have stated that the efficient proximate cause doctrine is the “preferred method for resolving first party insurance disputes involving losses caused by multiple risks or perils, at least one of which is covered by insurance and one of which is not.” Julian v. Hartford Underwriters Ins. Co., 35 Cal.4th 747, 753 (2005).
 Sabella v. Wisler (1963) 59 Cal.2d 21; Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 403; See also, California Ins. Code, § 530:
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; but he is not liable for a loss of which the peril insured against was only a remote cause.
 In Howell v. State Farm Fire & Casualty Co. (1990) 218 Cal. App. 1446, 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. 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.
 Insurance Code § 530.
 Finn v. Continental Ins. Co. (1990) 218 Cal.App.3d 69, 72.