A Primer on the Efficient Proximate Cause Doctrine in California

In California, the combination of both a covered loss and an uncovered loss can still be covered under the Efficient Proximate Cause Doctrine provided that the covered loss is the efficient proximate cause of the loss. California Courts have interpreted California Insurance Code sections 530 and 532 to codify the efficient proximate cause doctrine.

An insurer is liable for a loss of 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 it is not liable for a loss of which the peril insured against was only a remote cause.¹

If a peril is specially excepted in a contract of insurance and there is a loss which would not have occurred but for such peril, such loss is thereby excepted even though the immediate cause of the loss was a peril which was not excepted.²

The California Supreme Court has interpreted Cal. Ins. Code §530 and §532 to mean an incorporation into law of the “efficient proximate cause doctrine.”³ This means that when a loss is caused by a combination of a covered and specifically excluded risks, the loss is covered if the covered risk was the efficient proximate cause of the loss.⁴

Additionally, an Insurer cannot exclude the application of efficient proximate cause by inconsistent policy language.⁵ Also, the insurer cannot contract around the efficient proximate cause doctrine by a provision excluding concurrent causes.⁶ The “efficient proximate cause” is the reasonable expectations of the insurer and insured under the terms of the contract.⁷ Finally, the California courts have found coverage under the efficient proximate cause for third party negligence proper.⁸

An exclusion will not be void unless it makes the contract illusory or violates Cal. Ins. Code.⁹ In Julian, a heavy rain caused a mudslide which damaged the plaintiff’s property. The policy provided coverage from losses from rain but not for earth movement. The plaintiffs argued that this should be a covered loss because the weather condition of rain caused the mudslide. The appellate court went through a careful analysis of the efficient proximate cause doctrine in California and stated that an insurer cannot exclude the application of the efficient proximate cause doctrine by inconsistent policy language.¹⁰ The court defined the “efficient proximate cause” as providing a fair result between the reasonable expectations of the insured and insurer.¹¹ In applying this standard, the court stated that the insured should expect the provision excluding earth movement to include rain induced earth movement.¹²
_____________________________
¹ Cal. Ins. Code § 530 (West).
² Cal. Ins. Code § 532 (West).
³ Sabella v. Wiser, (1963) 377 P.2d 889, 895-897.
⁴ State Farm Fire & Cas. Co. v. Von Der Lieth, (1991) 820 P.2d 285, 291.
⁵ Julian v. Hartford Underwriters Ins. Co., (2005) 110 P.3d 903, 907-908 citing Garvey v. State Farm Fire & Cas. Co., 770 P.2d 704.
⁶ Julian, 110 P.3d at 907.
⁷ Id. at 912.
⁸ State Farm Fire & Cas. Co. v. Von Der Lieth, (1991) 820 P.2d 285.
⁹ See generally, Julian v. Hartford Underwriters Ins. Co., (1991) 820 P.2d 285.
¹⁰ Julian, 110 P.3d at 907.
¹¹ Id. at 912.
¹² Id. at 912-13.