Stankova v. Metropolitan Property and Casualty Insurance Company

In Stankova v. Metropolitan Property and Casualty Insurance Company, __ F.3d ___ (May 29, 2015), the Ninth Circuit Court of Appeal reversed the district court’s grant of summary judgment and remanded for further proceedings to determine whether a fire, which occurred a month prior to the landslide that destroyed the insureds’ home, “directly caused” the insured’s loss.

Plaintiffs Magda Stankova and Victor Nikolaev (“Plaintiffs”) owned a home with a detached garage in Arizona. The Ninth Circuit summarized the facts surrounding their loss:

In 2011, there was a massive wildfire, the "Wallow Fire," in the area near the Stankova house. The fire began on May 29, 2011 and was not contained until July 8, 2011. The fire itself consumed Stankova's detached garage on June 13, but did not reach the house. 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 Stankova house.

Plaintiffs alleged that the prior owner of the home did not disclose any previous damage from flood or mudslides, and that the home had not previously sustained any such damage while they owned it.

Plaintiffs made two claims to its insurer, Metropolitan: the first for the damage to the detached garage caused by the fire, and the second for the damage to their home from the mudslide. Metropolitan agreed to provide coverage for the damage to their garage, but denied coverage to the damage to their home, claiming the damage “was due to flood water and earth movement, both of which were explicitly excluded from coverage under the policy.” Plaintiffs contested this determination, and ultimately filed suit in superior court before Metropolitan removed the case to the federal district court. As such, the federal courts applied Arizona substantive law in reaching its decision.

Both parties filed motions for summary judgment. The district court granted summary judgment for Metropolitan, from which Plaintiffs appeal.

In analyzing coverage under the policy, the Ninth Circuit discussed an analogous California decision:

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). 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. Id. at 1449-50. 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. Id. at 1451.

By statute, California insurance policies are required to provide coverage whenever a covered peril is the "proximate cause" of the loss. Cal. Ins. Code § 530. Case law interprets "proximate cause" more broadly as "efficient proximate cause," or the cause that "sets others in motion" and is "the predominating or moving efficient cause."Sabella v. Wisler, 59 Cal. 2d 21, 27 Cal. Rptr. 689, 377 P.2d 889, 895 (Cal. 1963). Relying on this case law, in Howell, the appeals court reversed the trial court's grant of summary judgment, holding that a “reasonable juror could find that the burning of the slope was the 'predominating cause' or the one that set the others in motion.” 218 Cal. App. 3d at 1460.

While this decision is analogous, the Court noted that “Arizona has not adopted the doctrine of ‘efficient proximate cause,’” which constitutes the principal reason the district court granted summary judgment for Metropolitan. The Court characterized the issue on appeal: “The key question under Arizona law is then whether the mudslide that damaged Stankova's house was ‘directly’ caused by fire.” Plaintiffs claimed the mudslide was directly caused by the fire, whereas Metropolitan claimed it was not.

The Court looked to New York case law for analysis because Arizona’s standard fire policy is based on New York’s. New York law does not limit coverage to “loss by actual burning,” it also includes all losses which “necessarily follow[]” from the fire (quoting Throgs Neck Bagels, Inc. v. GA Ins. Co. of New York, 241 A.D.2d 66 (N.Y. App. Div. 1998)).

The Ninth Circuit concluded there was a triable issue as to whether the fire was the direct cause of the mudslide and subsequent damage to Plaintiffs’ home:

Under the definition of direct and proximate cause as 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 factfinder 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.” [Citation.]

. . . 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. A more limited analysis reaches the same result. Stankova produced some evidence that no mudslides or flooding had ever occurred on that property before, that wildfires commonly cause mudslides as a result of deforestation and erosion, and that the rains were not unusually heavy that year. The damage occurred only about a month after the fire was contained. Liristis v. Am. Family Mut. Ins. Co., 204 Ariz. 140 (Ariz. Ct. App. 2002)] is particularly instructive to us on this issue. The Liristis court found that mold damage, caused by water used to extinguish a fire, could be covered under fire coverage, even though coverage for loss due to mold itself was excluded under the policy. [Citation.]

While Metropolitan attempted to distinguish Liristis on various grounds (e.g. on the basis that the exclusion language was not identical), the Court rejected these arguments:

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.

The Ninth Circuit reversed the district court’s grant of summary judgment for Metropolitan, and remanded for consideration of the issue as to whether the fire was the “direct cause” of the loss to Plaintiffs’ home.