Homeowners: Check Your Insurance Policies

On January 9, massive mudslides overran Montecito neighborhoods, destroying homes, mangling cars and killing people who had just returned from fire evacuations.

The mudslides occurred just two weeks after the largest wildfire in California history. And it’s no coincidence. The fires scorched the hills above Montecito, burning all the vegetation and leaving a dense landscape of rock and clay that does not absorb water. When the rainstorm began, the hills and creekbeds transformed into a slide, carrying rocks, boulders and trees — destroying everything in its path.

Homes were flooded, battered, and swept away by the deluge. Now Montecito homeowners face the arduous task of repairing and replacing their homes and personal property, which means dealing with the insurance company. The problem is that homeowners insurance policies typically do not cover damage from mudslides and floods. But they do cover fire damage.

In the summer of 1985, wildfires burned large swaths of vegetation in Contra Costa County. That winter, the same area experienced heavy rainfall, causing a major landslide and flood in Lafayette, CA. One home was completely destroyed, forcing the residents to file a homeowners insurance claim. Their policy covered property damage caused by wildfires but specifically excluded “Earth Damage” and “Water Damage.” State Farm denied the claim on the basis of these exclusions.

In the lawsuit that followed, Howell v. State Farm, the court ruled in favor of the homeowners. It concluded that the wildfire caused the property damage because it induced the landslide and flood. Put another way, both the flooding and landslide would not have occurred but for the wildfire.

By statute, California insurance policies are required to provide coverage where a covered peril is the “proximate cause” of the loss. Courts have interpreted this broadly, adopting what is known as an “efficient proximate cause” theory of liability. According to this theory, causation is construed as the “predominant cause of damage” or the “cause that sets others in motion.”

Montecito homeowners are likely to encounter the same legal issue. Although insurance companies might argue that damage from the floods and mudslides are excluded, California law says otherwise.

The authors practice law at Ray Bourhis Associates, a San Francisco law firm. With Matthew’s father, Ray, who lives in Montecito, they founded insuranceconsumers.com, a website with free, pro-consumer information about insurance.