When an accident occurs there are often several events that caused or contributed to it. This is often referred to as the “chain of causation.” Some causes in that chain may be covered under an insurance policy, while others may be excluded. The situation arises in a variety of circumstances. Where multiple causes contribute to a loss, whether the loss is covered depends upon the “efficient proximate cause” of the loss. (Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 406-08.)
On December 11, 2015, in Vardanyan v. AMCO Insurance Company (2015) — Cal.App.4th —, the California Court of Appeal, Fifth Appellate District, issued a favorable decision for insureds relating to the efficient proximate cause doctrine. In Vardanyan, a rented residence was damaged by water leaks and intrusion, and the insured claimed coverage for collapse of part of his building, asserting it was caused by hidden decay or insect damage, which would be covered. (Vardanyan, supra, at *1-2.) Defendant relied on a host of exclusions, including for plumbing leaks, deterioration, mold, decay, wet or dry rot, settling, earth movement, construction defects and others, claiming they were the cause of loss, and the claim was excluded. (Id. at *2.)
Analyzing the coverage, Vardanyan observed the efficient proximate cause doctrine applies to resolve coverage disputes over “losses caused by multiple risks or perils.” (Id. at *3.) Vardanyan explained the efficient proximate cause is “the predominant cause or most important cause of the loss.” (Id. at *4.) The insurer took the position that if excluded perils contributed to the loss “in any way or to any degree” the claim was excluded. (Id. at 5.) Vardanyan rejected this position, and confirmed that “exclusions are unenforceable” if they conflict with the efficient proximate cause doctrine. (Id. at 4.) This means that insurers cannot “contract around” the doctrine by using policy language to “give broader effect to its policy exclusions” than permitted by the efficient proximate cause doctrine. (Id.) Vardanyan stated the insurer’s position was incorrect because it would preclude coverage whenever an excluded peril “contributed to the loss, even minimally.” (Id. at *7.) Vardanyan also noted that, where a case is litigated, insurers have the burden to “prove the most important or predominant cause” was excluded. (Id. at *11.)
Vardanyan makes clear that insurance companies cannot write policies that give broader effect to exclusions than allowed under the efficient proximate cause doctrine. This means that exclusions, regardless of how written, cannot be interpreted to preclude coverage where the predominant or most important cause is covered. Exclusions that purport to preclude coverage where an excluded peril “contributes” or “combines” with any other causes of loss, whether covered or not, likely exceed the scope of the efficient proximate cause. This is because they claim to exclude coverage whenever an excluded cause is present in the chain of causation, regardless of whether a covered peril was the predominant cause.
Insureds who suffer a loss caused by multiple perils, some covered and some excluded, and have their claim denied, should carefully scrutinize whether the insurance company can meet its burden to show that an excluded peril was the predominant or most important cause. Often a denial of a claim where there are multiple causes of loss can be successfully challenged using the efficient proximate cause doctrine and the insurance company’s burden to prove the most important cause of loss was an excluded cause.