Garvey v. State Farm Fire & Casualty Co.
257 Cal. Rptr. 292, 48 Cal. 3d 395, 770 P.2d 704 (1989)
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Rule of Law:
In first-party property insurance cases involving a loss arising from multiple causes, coverage is determined by the efficient proximate cause of the loss. If the efficient proximate cause—the predominating or moving cause—is a covered peril, the loss is covered; if it is an excluded peril, the loss is not covered.
Facts:
- Plaintiffs Jack and Rita Garvey purchased a house in the mid-1970s.
- An addition, built in the early 1960s, was part of the house.
- In 1977, the Garveys purchased an 'all risk' homeowner's insurance policy from State Farm Fire and Casualty Company.
- The policy specifically excluded losses 'caused by, resulting from, contributed to or aggravated by any earth movement,' as well as settling and cracking.
- In August 1978, the Garveys noticed that the house addition had begun to pull away from the main structure.
- They also discovered damage to a deck and a garden wall on their property.
- The Garveys filed a claim, attributing the loss to contractor negligence, which was not an excluded peril.
- State Farm investigated and concluded the loss was caused by earth movement, an excluded peril.
Procedural Posture:
- Jack and Rita Garvey sued State Farm Fire and Casualty Company in California superior court (trial court) for breach of contract and bad faith.
- At the conclusion of the trial, the court granted the Garveys' motion for a directed verdict on the issue of insurance coverage.
- The jury subsequently returned a verdict against State Farm, awarding policy benefits, general damages, and $1 million in punitive damages.
- State Farm appealed the judgment to the California Court of Appeal.
- The Court of Appeal, in a divided opinion, reversed the trial court's judgment.
- The Supreme Court of California granted the Garveys' petition for review.
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Issue:
In a first-party 'all risk' property insurance claim, does coverage exist when a loss is caused by both a covered peril and an excluded peril, if the covered peril is merely a concurrent proximate cause of the loss?
Opinions:
Majority - Lucas, C. J.
No. In a first-party property insurance context, coverage is not available merely because a covered risk was a concurrent proximate cause of the loss; rather, coverage is determined by the efficient proximate cause. The court distinguished between first-party property insurance, which is a contract to indemnify for direct loss to property, and third-party liability insurance, which covers the insured's liability for torts against others. The 'concurrent causation' doctrine from State Farm v. Partridge, which finds coverage if any concurrent cause is a covered peril, is limited to third-party liability cases involving independent acts of negligence. For first-party property claims, the proper standard is the 'efficient proximate cause' test from Sabella v. Wisler, which identifies the predominating or 'moving' cause of the loss. Applying the Partridge standard to property policies would effectively nullify exclusions and turn 'all-risk' policies into 'all-loss' policies, contrary to the reasonable expectations of the parties. Because there was conflicting expert testimony as to whether contractor negligence (a covered peril) or earth movement (an excluded peril) was the efficient proximate cause of the Garveys' loss, the directed verdict was improper and the issue of causation must be decided by a jury.
Dissenting - Mosk, J.
Yes. Coverage exists, and the directed verdict was proper. The established rule from Sabella and Partridge is that when multiple causes are independent, coverage exists if any proximate cause is an included risk. The majority's creation of a single 'predominating cause' rule is unworkable and devoid of standards. The distinction between first-party and third-party policies is artificial, as the causation analysis should be the same. In this case, the evidence established without substantial dispute that negligent construction was an independent, concurrent proximate cause of the loss, mandating coverage under Partridge. The trial court correctly applied the law, and its decision should be upheld.
Dissenting - Broussard, J.
Yes. The directed verdict on coverage was proper under either a concurrent or successive causation analysis. The majority misinterprets Sabella, which does not preclude coverage when an excluded peril is the efficient cause and a covered peril is the immediate cause of the loss. Prior case law, construing policy language in favor of the insured, has found coverage in such situations (e.g., an excluded earthquake causes a covered fire). The exclusion clause for 'loss... caused by... earth movement' is ambiguous and should not be read to bar coverage when an excluded cause sets in motion a covered cause. The majority's rule creates an artificial symmetry that ignores the fundamental principle of construing exclusions narrowly and in favor of the insured's reasonable expectations.
Concurring - Kaufman, J.
I agree that the directed verdict was error and the case must be remanded, but I disagree with the majority's reasoning. The confusion in this area of law stems not from the first-party versus third-party distinction, but from fundamental flaws in the Partridge decision itself. Partridge improperly imported tort law concepts of concurrent causation into a contract interpretation question and mischaracterized the causes in that case as 'independent' when they were not. The proper analysis in all insurance coverage cases, whether first-party or third-party, should be based on contract principles guided by the Sabella 'efficient proximate cause' framework. Partridge should be overruled to the extent it deviates from this contract-based analysis.
Analysis:
This decision significantly clarified and bifurcated causation analysis in California insurance law, firmly establishing the 'efficient proximate cause' test from Sabella as the exclusive standard for first-party property claims. By explicitly limiting the more insured-friendly 'concurrent causation' doctrine from Partridge to third-party liability cases, the court curtailed a trend that had expanded coverage in property loss cases. The ruling makes it more difficult for insureds to obtain coverage when an excluded peril, such as earth movement or flooding, is the predominant cause of a loss, even if a covered peril like third-party negligence contributed. This provides insurers with a more predictable and defensible standard for denying multi-causal claims, thereby limiting their exposure in catastrophic events.
