STATE FARM FIRE AND CASUALTY COMPANY, Plaintiff, Cross–Defendant and Appellant, v. Eric VON DER LIETH, et al., Defendants, Cross–Complainants and Appellants.
In this action for breach of a policy of homeowner's insurance and “insurance bad faith” State Farm Fire and Casualty Company (“State Farm”) appeals from a judgment in favor of Eric and Jadeane Von Der Lieth in the amount of $55,000. The Von Der Lieths cross-appeal, urging that they are entitled to $231,000. The case arises out of the Big Rock Mesa landslide in Malibu, and involves the enforceability of State Farm's “all risk” policy exclusion for loss resulting from earth movement.
The Von Der Lieths purchased their home at that location in 1976. In the fall of 1983, they received a letter from Los Angeles County informing them it had detected significant evidence that an incipient landslide might be developing on the mesa. They subsequently noticed cracking in the interior and exterior walls, patio, and front steps.
The Von Der Lieths' homeowner's insurance policy with State Farm insured “for all risks of physical loss to the property ․ except for loss caused by: ․ settling, cracking, shrinking, bulging, or expansion of pavements, patios, foundations, walls, floors, roofs or ceilings” and for “loss resulting directly or indirectly from: ․ Earth Movement ․ Water Damage, meaning; ․ (c) natural water below the surface of the ground, including water which exerts pressure on, or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or other structure.”
In March 1984, the Von Der Lieths submitted a claim to State Farm for damage to their house. State Farm inspected it and, in December 1985, paid them $14,075.71, to cover physical damage to the building, without admitting or denying liability. The Von Der Lieths, who were represented by counsel, contended they were entitled to payment of the policy limits because the cost of stabilizing the ground underlying their home, which would require stabilization of the entire mesa, exceeded those limits.
State Farm filed a complaint for declaratory relief, seeking a declaration that coverage under its policy did not extend to or include the cost of stabilizing the land under the home. The Von Der Lieths filed a cross-complaint against State Farm making the usual charges of breach of the implied covenant of good faith and fair dealing, unfair claims practices (Ins.Code, § 790.03, subd. (h)), breach of contract, intentional and negligent infliction of emotional distress, and sought declaratory relief in their favor. The action was consolidated with three related suits for trial by jury.1
The evidence established that Big Rock Mesa had been the site of six episodes of major prehistoric landslides, as well as minor historic slides caused by rainfall. In 1933 the State of California had constructed the Pacific Coast Highway in its present location. In so doing it had removed material from the base of the sea cliff, making it less stable.
When the original housing tracts on the mesa were approved by Los Angeles County (the “County”) in 1962, it was concerned that the use of septic tank waste disposal systems might elevate the ground water level and reactivate the prehistoric landslide activity. However, relying upon a report prepared by the developer's geologist, the County allowed the development to proceed with a septic tank system, upon the condition the developer would (1) install and maintain four horizontal drains, or hydraugers, in the side of the bluff to drain away surface water, and (2) create an entity responsible for maintaining the hydraugers.
The developer formed the Malibu Mutual Drainage Company (the “MMDC”), consisting of the original 70 homeowners, at the time the first tract was developed. In 1973, a County engineer recommended a dewatering program. Had the project been undertaken then, the damage suffered by the Von Der Lieths probably would not have occurred. The MMDC officially dissolved in 1975, and various pumping wells on the mesa operated by the homeowners were abandoned. These actions contributed to the rise in ground water level on the mesa.
In 1983, a group of homeowners formed the Concerned Citizens for Water Control (CCWC), and the Von Der Lieths contributed $1,100 to the organization. It hired D.A. Evans, Inc., to refurbish the existing dewatering wells on the mesa, to install new dewatering wells, and to monitor land movement.
In December 1983, the County formed an improvement district to provide landslide mitigation efforts in the area which also hired D.A. Evans, Inc. The district installed more horizontal drains, reactivated existing hydraugers, and monitored ground movement. At the time of trial, it was designing a surface drainage system, and continuing to pump the dewatering wells and monitor the hydraugers. The district had incurred expenses of $2,800,000 through the date of trial and estimated spending a total of $4,000,000. It had authority to spend up to $4,800,000, which would result in an individual assessment to the homeowners of $17,606.
The Von Der Lieths' home is of wood stud construction on a concrete slab, with a stucco exterior and dry wall interior. It exhibited cracks in the walls, patio, and front steps, and a tilt of 3–4 inches from front to rear in the slab. Conflicting opinions were offered regarding whether the damage was the result of the landslide movement or of settling due to differences in the depth of landfill under the dwelling. The Von Der Lieths conceded that they had been compensated by State Farm for the physical damage to their house, apart from the question of stabilization costs.
At the conclusion of trial the jury returned a special verdict. It found that State Farm had breached the insurance contract and the implied covenant of good faith and fair dealing, and had committed unfair claims practices. Regarding damages, it determined that the Von Der Lieths were not entitled to recover punitive damages from State Farm, that third party negligence was the efficient proximate cause of their damage, and that State Farm had not failed to pay for covered physical damage. It decided that although State Farm was not responsible for the cost of land stabilization, it was liable for the sum of $1,100, the Von Der Lieths' reasonable costs incurred to repair their property to protect it from further loss or damage. As damages for breach of the covenant of good faith and fair dealing and unfair claims practices, the jury assessed $55,000.
The motions for judgment notwithstanding the verdict of both parties and the Von Der Lieths' motion for new trial were denied. The present appeal and cross-appeal followed.
State Farm contends the judgment for the Von Der Lieths was erroneous as a matter of law because earth movement, an excluded peril, was the efficient proximate cause of the damage they suffered, rendering the loss excluded under Sabella v. Wisler (1963) 59 Cal.2d 21, 31–32, 27 Cal.Rptr. 689, 377 P.2d 889, and Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 403–404, 257 Cal.Rptr. 292, 770 P.2d 704.2
Sabella holds that where different causes concur to result in a loss, it must be attributed to the one that sets the others in motion, or the efficient cause. That analysis is reaffirmed in Garvey, but the test is modified to require a determination of the predominating cause, rather than the triggering cause. Garvey reasons that “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. On the other hand, if the insurer is expected to cover claims that are outside the scope of the first party property loss policy, an ‘all risk’ policy would become an ‘all loss' policy. [Citation.] In most instances, the insured can point to some arguably covered contributing factor․” (Garvey, supra, 48 Cal.3d at p. 408, 257 Cal.Rptr. 292, 770 P.2d 704.)
Garvey emphasizes that remote causes are not a ground for coverage, and leaves open the question whether courts should distinguish between different types of third party negligence:
“For example, if construction is undertaken on the insured premises for the sole purpose of protecting against the operation of a specifically excluded risk under the homeowner's policy, and that improvement subsequently fails to serve its purpose because it was negligently designed or constructed, the damage to the structure should arguably not be covered. On the other hand, ordinary negligence that contributes to property loss, but does not involve acts undertaken to protect against an excluded risk, may give rise to coverage under an all-risk policy․” (Garvey, supra, at pp. 408–409, fn. 7, 257 Cal.Rptr. 292, 770 P.2d 704.)
Examples of acts undertaken to protect against an excluded risk might include the compaction of soil designed to prevent the excluded risk of settling. A third party's failure to properly prepare the soil, so that settling occurs, should arguably not result in coverage. This view is consistent with Sabella. There two forms of negligence by the builder were identified: improper compaction of the soil and installation of plumbing pipes. The court indicated, however, that since settling was an excluded risk, the loss would not be covered unless third party negligence in pipe installation, which is independent of the excluded peril, were found to be the efficient cause.
Similarly, in Finn v. Continental Ins. Co. (1990) 218 Cal.App.3d 69, 267 Cal.Rptr. 22, the court held the Sabella analysis inapplicable where there were not two distinct or separate perils. In that case the court determined that the excluded risk of damage by continuous or repeated seepage or leakage, an excluded risk, could not be considered covered even if a pipe which leaked, had been broken suddenly, an included risk.
In the present case the damage to the Von Der Lieths' home was caused by an excluded risk, earth movement. That risk was the result of the rising ground water level on the mesa due to development, a similarly excluded incident, i.e., “Water damage, meaning; [¶] (c) natural water below the surface of the ground, including water which exerts pressure on, or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or other structure.”
The Von Der Lieths' contention that the elevation of the ground water level did not involve “natural water” because the ground water was made up in large part of water from the homeowners' sewage system, fails. While uncertainties arising from policy language are resolved in favor of the insured to protect his reasonable expectation of coverage, where language is clear, when read in its ordinary sense, the rule does not apply. (Producers Dairy Delivery Co. v. Sentry Ins. Co. (1986) 41 Cal.3d 903, 912, 226 Cal.Rptr. 558, 718 P.2d 920.)
In a developed area, one would expect the ground water to show signs of human contact. We do not believe the ordinary reader of the policy (see Sabella v. Wisler, supra, 59 Cal.2d at pp. 30–31, 27 Cal.Rptr. 689, 377 P.2d 889) would believe the exclusion applied only to pure ground water, but rather was meant to distinguish between ground water and, for example, water emitting from a burst pipe. We note in addition that the policy excludes damage caused by “leakage or seepage of water ․ from any: ․ plumbing system.”
The Von Der Lieths point to the State's construction of the Pacific Coast Highway in 1933 and the County's failure both to require sewers in 1963 and to dewater the mesa prior to its efforts beginning in 1983 as third party negligence which was the predominant cause of their damage. They, however, did not show that the construction of the Pacific Coast Highway was unreasonable in light of conditions existing at that time. Their own expert testified that in 1962 he approved of the County's allowing the development of Big Rock Mesa without requiring sewers, and they failed to establish any duty on the part of the County to act sooner than it did to dewater the mesa.
Moreover, even assuming those acts and failings were negligent, they were as a matter of law not the predominant cause of the loss. None of the asserted negligent acts involved perils distinct from excluded risks. In addition, the State's conduct in 1933 is simply too remote to be regarded as an efficient proximate cause of the damage. We fail to see how the County's failure to prevent the excluded loss could transform it to an included one.
In hindsight, it appears that the development of the mesa should have been more carefully undertaken. Although we sympathize with appellant's plight, it is clear the cost of stabilizing a slide area such as Big Rock Mesa is astronomical. Such expenses are beyond the intended policy coverage, which is reflected in premium cost. We do not believe that ordinary insureds should bear the expense of increased premiums necessitated by coverage for risks expressly excluded under the policy.
We conclude the cause of the damage was not a covered risk despite the jury's finding that third party negligence was the efficient proximate cause of the damages. The jury was erroneously instructed that “[t]he efficient proximate cause of a loss, where there are concurring causes, is the one that sets the others in motion. The efficient proximate cause is the one to which the loss is to be attributed, though other causes may follow it and operate more immediately in producing the loss.”
The language of Sabella, supra, 59 Cal.2d at pp. 31–32, 27 Cal.Rptr. 689, 377 P.2d 889, upon which that instruction was based is criticized in Garvey, supra, 48 Cal.3d at p. 403, 257 Cal.Rptr. 292, 770 P.2d 704, as misleading since it can be misconstrued to mean the “triggering,” rather than the predominating, cause. (See Mission National Ins. Co. v. Coachella Valley Water Dist. (1989) 210 Cal.App.3d 484, 495, 258 Cal.Rptr. 639.) In any event, as the sequence of events leading to the landslide is not in dispute, the question of proximate cause is one of law. (See Sabella v. Wisler, supra, 59 Cal.2d at p. 32, 27 Cal.Rptr. 689, 377 P.2d 889.)
Having concluded the damage suffered by the Von Der Lieths was not covered by the policy, we find it unnecessary to address the remaining issues raised by the parties, which involve the jury's finding of bad faith, State Farm's contractual obligation to pay for stabilization of the mesa, jury instructions, and evidentiary rulings. (See Murray v. State Farm Fire & Casualty Co. (1990) 219 Cal.App.3d 58, 65–66, 268 Cal.Rptr. 33.)
The judgment is reversed. The trial court is ordered to enter judgment for State Farm Fire and Casualty Company. State Farm to recover its costs on appeal.
1. Actions involving State Farm and Duane and Azar Storhaug (L.A.Super.Ct. No. WEC 97752), Nickolai and Doreen Ostro (L.A.Super.Ct. No. C580862), and Stuart and Jo Martha Stanchfield (L.A.Super.Ct. No. WEC 097753), consolidated for trial with the present suit, were settled prior to this appeal.
2. Garvey was decided subsequent to the trial in the present case. It is, however, retroactive to cases not final on the date of decision. (See La Bato v. State Farm Fire & Casualty Co. (1989) 215 Cal.App.3d 336, 343, 263 Cal.Rptr. 382.)
GATES, Associate Justice.
ROTH, P.J., and KLEIN, J. *, concur.