California warns insurers about denying claims too quickly following winter storms

While home insurance typically excludes damage from floods and mudslides, Californians might be covered if wildfires were an ‘efficient proximate cause.’

“Based upon the Insurance Code provision and established case law described above, insurance companies should not deny these claims before undertaking a diligent investigation regarding the cause of loss and carefully considering the facts,” California Insurance Commissioner Ricardo Lara wrote in a notice to insurers. (Credit: David Paul Morris)

The California Department of Insurance sent a notice to insurers warning them not to act too quickly when denying flood, mudslide and other claims following a series of winter storms that have beleaguered the West Coast.

A weather warning sign beside the freeway during a rain storm in Los Angeles, on Thursday, Jan. 5, 2023. A powerful storm with hurricane-force gusts has begun to wind down after ripping across California, leaving behind power outages, flood threats and road closures just hours before another drenching is set to wash over the state. (Credit: Eric Thayer/Bloomberg)

The past two weeks have brought a series of storms to California that have knocked out power lines, closed roads and raised the risks of flooding and mudslides, according to Bloomberg, which reported the weather pattern could continue through the end of the month.

“It’s not like this is done,” Bob Oravec, senior branch forecaster at the U.S. Weather Prediction Center, said in an interview with Bloomberg. “The rain reloads in Northern California tomorrow (Jan. 6, 2023). Then there’s a big rain event Monday and Tuesday.”

While flooding, mudslides and earth movement claims are typically excluded under property insurance policies, California’s insurance code stipulates these exclusions are not enforceable if it can be established that a wildfire (a covered peril) was the efficient proximate cause of subsequent flooding, mudflow, debris flow, mudslide, landslide or similar event, according to the notice sent by California Insurance Commissioner Ricardo Lara.

“Based upon the Insurance Code provision and established case law described above, insurance companies should not deny these claims before undertaking a diligent investigation regarding the cause of loss and carefully considering the facts,” Lara wrote.

Specifically, California Insurance Code § 530 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; but he is not liable for a loss of which the peril insured against was only a remote cause.”

The insurance code was updated in 2018 following the Montecito mudslide, which followed the Thomas Fire and resulted in 23 deaths and $421 million in damages, according to the California Department of Insurance.

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