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Those of us who live in the western United States see wildfires on a regular basis. Fire is a named peril and is covered by a simple fire policy and by a homeowners or commercial property policy. Landslides and mudslides that follow wildfires because the fire burned off the vegetation that would hold the soil in place after a rain are excluded as surface water, mudflow or landslide. Most prudent homeowners who live in areas subject to wildfires also purchase flood insurance to cover the risk of loss by mudflow after a fire burns off the local watershed.
In Stankova v. Metropolitan Property and Cas. Ins. Co., — F.3d —-, 2015 U.S. App. LEXIS 8935 (C.A.9 (Ariz.) 5/29/15), [enhanced version available to lexis.com subscribers], the Stankovas, as insureds, sued their insurer in state court against their homeowner’s insurer who had denied coverage under a homeowners policy exclusion after flooding and mudslides in the area destroyed their home one month after a wildfire destroyed all the vegetation on a nearby hillside. They claimed that the cause of the loss was not the mudflow but the fire that denuded the hillside and was the proximate cause of their loss.
Following removal, the United States District Court for the District of Arizona, granted summary judgment in favor of the insurer seeing that the house was not burned and was destroyed by mud, [enhanced version available to lexis.com subscribers]. The insureds appealed.
The Stankovas’ home and its garage were insured under a homeowner’s insurance policy issued by Metropolitan Property and Casualty Insurance Company (“Metropolitan”). The policy provided coverage for “sudden and accidental direct physical loss or damage” by “Fire or Lightning” as a covered peril. Plaintiffs’ homeowner’s policy covered damage directly caused by fire, and excluded damages caused by flooding or earth movement.
In 2011, there was a massive wildfire, the “Wallow Fire,” in the area near the Stankovas house. The fire itself consumed the Stankovas detached garage on June 13, but did not reach the house. Metropolitan paid for the loss of the garage. The wildfire also destroyed all the vegetation on a nearby hillside. On August 6, 2011, a month after the wildfire was put out, there was a mudslide on the hillside. The mudslide and runoff water destroyed the Stankovas house.
The Stankovas sought coverage under the homeowner’s policy first for the destruction of the garage and later for the destruction of the home. Metropolitan agreed to cover the loss of the garage but denied coverage for the loss of the home. Metropolitan informed the Stankovas that it was denying coverage because the damage was due to flood water and earth movement, both of which were explicitly excluded from coverage under the policy. Stankova contested this determination, arguing that fire was the actual and proximate cause of the loss.
The case the parties discuss that is factually closest to this case is Howell v. State Farm Fire & Cas. Co., 218 Cal.App.3d 1446, 267 Cal.Rptr. 708 (1990), [enhanced version available to lexis.com subscribers]. There, a wildfire occurred near the insured’s property in summer; when winter and heavy rains came, a landslide occurred and damaged the property. The policy at issue provided coverage for fire damage but not water or earth movement damage. The insurer denied coverage on that basis, and the insured successfully appealed, with the court holding that the landslide likely would not have occurred if there had not been a fire, and that therefore the fire was the “efficient proximate cause” of the loss.
Arizona has not adopted the doctrine of “efficient proximate cause” in deciding issues of causation in insurance disputes. See Millar v. State Farm Fire & Cas. Co., 167 Ariz. 93, 804 P.2d 822, 826 (Ariz.Ct.App.1990), [enhanced version available to lexis.com subscribers]. However, the underlying policy coverage issue in Millar was not related to direct loss caused by fire damage. Nevertheless, the fact that Arizona has not adopted the efficient proximate cause doctrine is a principal reason the district court granted summary judgment for Metropolitan, so we must look closely at Arizona law.
Arizona requires, by statute, that all fire insurance policies conform to a standard policy, which is based on New York’s standard fire policy of 1943. If a policy conflicts with the provisions in the standard policy, the standard policy provisions govern. The standard fire policy states that an insurer will provide coverage against all direct loss by fire, lightning and by removal from premises endangered by the perils insured against in this policy.
The key question under Arizona law is then whether the mudslide that damaged Stankova’s house was “directly” caused by fire. Stankova argues that the mudslide was directly caused by the fire, and that therefore the damage to her home is covered under the policy. Metropolitan argues that Stankova’s insurance policy unambiguously excludes water damage and earth movement and asserts that the fire was not a direct cause of the damage to Stankova’s house.
Fire insurance is intended to cover every loss, damage, or injury proximately caused by fire. The Ninth Circuit also believes that it also covers every loss necessarily following directly and immediately from such peril or from the surrounding circumstances, the operation and influence of which could not be avoided. Under the definition of direct and proximate cause adopted by Arizona, it is possible that the fire directly caused Stankova’s loss in an unbroken sequence and connection between the wildfire and the destruction of the house. A reasonable fact finder could conclude that the destruction of the house was caused by the fire, which likely caused the mudslide, the operation and influence of which could not be avoided.
Thus, although an efficient proximate cause analysis is not appropriate under Arizona law, we need not apply that doctrine in order to find that the damage here could have been directly and proximately caused by the wildfire.
There is no doubt that Metropolitan attempted to limit its coverage with its anti-concurrent causation provision. However, this provision is inconsistent with Arizona’s standard fire insurance policy, which insures against all direct loss by fire. We know of no case that would allow Metropolitan to contract out of the standard fire policy’s purpose so as to exclude coverage for this type of direct loss from fire.
There is a triable issue as to whether the fire directly caused the destruction of Stankova’s home. The district court’s grant of summary judgment was reversed and the case remanded for trial or further proceedings.
I believe a reasonable trier of fact would find the direct cause of loss was landslide and mudflow, two causes specifically excluded, much easier than finding the direct cause of the loss was fire since there is no way to determine that the mud would not have flowed but for the fire. This is not a finding that fire caused the damage. It is only a finding that a reasonable jury might find that it is the cause of loss.
By Barry Zalma, Attorney and Consultant
Reprinted with Permission from Zalma on Insurance, (c) 2015, Barry Zalma.
Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.
Mr. Zalma can be contacted at or firstname.lastname@example.org, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.
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