California Insurance Commissioner Dave Jones issued a formal notice to all property and casualty insurance companies on Jan. 29 regarding homeowners' claims from the recent mudslides and debris flows.
The notice acknowledges that homeowners' and certain commercial property insurance policies frequently have exclusions for losses from mudflow, debris flow, mudslide, landslide or other similar events. Under California insurance law, the exclusions are not enforceable if the facts establish that the wildfire, which is a covered peril, was the "efficient proximate cause" of the subsequent flowing, mudflow, debris flow, mudslide, landslide, or other similar events.
The efficient proximate cause doctrine — which is an interpretive rule for first-party insurance disputes — states that "When 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." [State Farm Fire & Casualty Co. v. Von Der Lieth (1991), 820 P.2d 285]
According to the insurance code and case law, if the facts show the Thomas Fire, a covered peril, was the efficient proximate cause of the subsequent mudflow, mudslides, debris flow, landslide, or another similar event, then the damage caused by those events should be covered under the property owner's insurance policy.
The complicating factor for most Californians will be determining what actually caused their losses. The notice also reminds insurers not to deny the claims before "undertaking a diligent investigation regarding the cause of loss and after carefully considering the facts."
"Californians have suffered greatly with all of the devastating losses from wildfires that struck the state in the last three months of 2017," said Jones in a statement. "Preliminary indications are that the Thomas Fire burned vegetation which would otherwise have absorbed rainfall and held soils in place, which in turn resulted in the mudflows, mudslides, debris flows or landslides. If the evidence shows the Thomas Fire or another peril covered by a homeowner's insurance policy was the efficient proximate cause of mudflow damage, I expect insurance companies to step up and cover these financial losses."
Residents and business owners in Santa Barbara County affected by the mudslides should file a claim with their insurance company as soon as possible. If consumers have issues navigating the claims process, or they think their claim was wrongfully denied, they're advised to contact the Department of Insurance at 800-927-4357 or online at www.insurance.ca.gov for assistance.
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Rosalie Donlon
Rosalie Donlon is the editor in chief of ALM's insurance and tax publications, including NU Property & Casualty magazine and NU PropertyCasualty360.com. You can contact her at [email protected].
