How should coverage be determined if a loss is caused by a combination of both covered and excluded risks?

Two months ago, in Vardanyan v. Amco Insurance Company,1 a California Court of Appeal issued an important decision addressing this issue. The court reaffirmed that where there are multiple causes of damage to an insured’s property, with some covered and some excluded, the loss is covered if the most important or predominant cause is a covered risk. The holding is based on the efficient proximate cause doctrine codified in Insurance Code section 530, which provides:

An insurer is liable for a loss for which a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss of which the peril insured against was only a remote cause.2

Moreover, the appeals court in Vardanyan relied on the California Supreme Court decision in Sabella v. Wisler, which established the general rule:

In determining whether a loss is within an exception in a policy, where is a concurrence of different causes, the efficient cause–the one that sets others in motion–is the cause to which the loss should be attributed, though the other causes may follow it, and operate more immediately in producing the disaster.3

What prompted the appeal by the insured in Vardanyan, a case involving collapse of the insured’s house, was an erroneous jury instruction proposed by the defense and given by the trial judge. The appeals court found that jury instruction as essentially circumventing the efficient proximate cause doctrine. The case is an important read to understand how the efficient proximate cause doctrine works and is applied. Policyholders in California can thank the law firm of Kerley Schaffer for representing the insured in the appeal and United Policyholders attorneys Amy Bach and Daniel Wade for their contributions in an amicus brief.

1 Vardanyan v. Amco Insurance Co. (2015) 243 Cal. App. 4th 779.
2 Cal. Ins. Code section 530.
3 Sabella v. Wisler (1963) 59 Cal. 2d 21, 31-32.