In the wake of last week's landslides in Laguna Beach, the hunt is on to find some contributing cause other than earth movement, for the simple reason that earth movement is typically not a covered cause of loss under a homeowners insurance policy. Human negligence, on the other hand, often is a covered cause. Better yet, negligent humans often carry liability insurance of their own that may be available to contribute toward repair or replacement of the damaged homes.
The Daily Journal [available online only to subscribers] in its June 2 report gives a flavor of the thing as the finger of blame begins to search for a target:
Among the many parties who likely will be investigated for culpability are the construction companies that built the homes, developers who graded the lots, irrigation firms and even prior owners of the homes who didn't disclose information about past landslides to new buyers.
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The county also could face claims for allowing residents to build homes on the sites of ancient slides and for not providing adequate protection from future ones . . . .
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[D]espite the accepted risks of hillside living and homeowners' willingness to build mansions above historically unstable ground, when houses topple and life savings are swallowed up, the finger pointing should follow quickly.
'You can be sued at any time for anything by anybody, even if there's no liability,' [attorney Marc] Leggett said. 'Every time you see a natural catastrophe like this, and it's a sad commentary on my profession, but there are guys just licking their chops.'
Two issues that come up in recent appellate decisions and in pending legislation are likely to become factors in insurance claims arising from the Laguna Beach slides:
1. Concurrent Causation: California Insurance Code section 530 addresses the question of what is to be done when an excluded cause (such as earth movement) combines with a covered cause (such as human error) to bring about a loss. Under the Code, the existence or nonexistence of coverage will be determined by looking to see which factor was the "efficient dominant cause" of the loss. If the "efficient dominant cause" is covered, the entire loss may be covered despite the contribution of otherwise excluded factors.
The California Supreme Court recently revisited the "concurrent cause" problem in the case of Julian v. Hartford Underwriters Ins. Co., Case No. S109735 (May 5, 2005). The opinion in that case can be accessed at these links in PDF and Word formats.
[Note: Links expire approximately 120 days following issuance of the opinions; the opinions should still be accessible thereafter by substituting "archive" for "documents" in the URL.]
2. Inventory/Proof of Loss: When a loss is covered under a homeowners policy, the burden is usually on the homeowner to establish what exactly was lost, such as by providing an inventory of the contents of the damaged or destroyed structure. Senate Bill 2 now pending in the Legislature -- it passed in the Senate on May 23 and is now in committee in the Assembly -- would relieve homeowners of the burden of providing an in-depth inventory in the event of at total loss of the insured home. (If passed, the law would not become effective until next year, so it does not directly affect the homeowners in Laguna Beach.)
Under the current version of the bill, a homeowner who sustained a total loss would be given the option of either providing proof and an inventory and recovering the amount of loss actually proven or not providing an inventory and automatically receiving 85% of the amount stated as the limits of the policy's personal property coverage. The proposal resembles a "valued policy law." Those laws, adopted in a minority of states -- Florida is perhaps the most prominent example -- provide that when an insured property is totally destroyed, the face value of the insurance policy is conclusively presumed to be payable, whether or not it accurately reflects the true amount of the loss.
As reported by Insurance Journal, there is some opposition in industry circles to SB 2, particularly because it poses the risk inherent in all valued policy laws: that the conclusive presumption establishing the amount that is to be paid may allow the insured to profit by his or her loss, if the actual value of the destroyed property was less than the amount stated in the policy.
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