Garvey v. State Farm Fire & Casualty Co., S.F. 25060

CourtUnited States State Supreme Court (California)
Writing for the CourtLUCAS; KAUFMAN; PANELLI; MOSK; BROUSSARD
Decision Date30 March 1989
Parties, 770 P.2d 704 Jack I. GARVEY et al., Plaintiffs and Respondents, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant and Appellant.
Docket NumberS.F. 25060

Page 292

257 Cal.Rptr. 292
48 Cal.3d 395, 770 P.2d 704
Jack I. GARVEY et al., Plaintiffs and Respondents,
v.
STATE FARM FIRE AND CASUALTY COMPANY, Defendant and Appellant.
S.F. 25060.
Supreme Court of California,
In Bank.
March 30, 1989.

[48 Cal.3d 398] Rogers, Joseph, O'Donnell & Quinn, Joseph W. Rogers, Jr., Susan M. Popik and Leo F. Orenstein, San Francisco, for defendant and appellant.

Horvitz, Levy & American, Ellis J. Horvitz, Stuart B. Esner, Michael R. Tyler, Encino, LeBoeuf, Lamb, Leiby & MacRae, John R. Maloney, Donald J. Greene and Ellen August, San Francisco, as amici curiae on behalf of defendant and appellant.

Bianco, Brandi, Jones & Rudy, Bianco, Brandi, Jones, Shane & Rudy, Feeney, Sparks & Rudy, San Francisco, David W. Rudy, Oakland, Thomas E. Feeney, Joel P. Gumbiner and Terry Senne, San Francisco, for plaintiffs and respondents.

Fadem, Berger & Norton, Michael M. Berger, Los Angeles, Harry V. Lehmann, Novato, Hal Chase, Jr., Larkspur, Roland Berard, James P. Nevin, Novato, Browne Greene, Los Angeles, Charles O'Reilly, Santa Monica, Leonard Sachs, Robert Steinberg, Douglas DeVries, Sacramento, James R. McGrath, Glendale, Harvey R. Levine, San Diego, Sanford Gage, Beverly Hills, Don Caffray, Long Beach, and Ian Herzog, Santa Monica, as amici curiae on behalf of plaintiffs and respondents.

LUCAS, Chief Justice.

We granted review to consider the Court of Appeal's reversal of a directed verdict of coverage in favor of Jack and Rita Garvey (hereafter plaintiffs). We sought to resolve some of the confusion that has arisen regarding insurance coverage under the

Page 293

"all-risk" section of a homeowner's insurance policy when loss to an insured's property[770 P.2d 705] can be attributed to two causes, one of which is a nonexcluded peril, and the other an excluded peril.

In recent years, some courts have misinterpreted and misapplied our decisions in Sabella v. Wisler (1963) 59 Cal.2d 21, 27 Cal.Rptr. 689, 377 P.2d 889, and State Farm Mut. Auto Ins. Co. v. Partridge (1973) 10 Cal.3d 94, 109 Cal.Rptr. 811, 514 P.2d 123. In so doing, they have allowed coverage in first-party property damage cases under our holding in Partridge by inappropriately using the Partridge concurrent causation approach [48 Cal.3d 399] as an alternative to Sabella 's efficient proximate cause analysis. 1 This extension of the analysis in Partridge, a third-party liability case, allows coverage under a first-party property insurance policy whenever a covered peril is a concurrent proximate cause of the loss, without regard to the application of specific policy exclusion clauses. 2 Such reasoning ignores the criteria set forth in Insurance Code sections 530 and 532, 3 the relevant analysis in Sabella and the important distinction between property loss coverage under a first-party property policy and tort liability coverage under a third-party liability insurance policy. Indeed, because a covered peril usually can be asserted to exist somewhere in the chain of causation in cases involving multiple causes, applying the Partridge approach to coverage in first-party cases effectively nullifies policy exclusions in "all risk" homeowner's property loss policies, thereby essentially abrogating the limiting terms of insurance contracts in such cases. We cannot believe Partridge intended such a sweeping result in first-party property loss cases. To the contrary, as we explain below, we must put Partridge, in its proper perspective, i.e., that decision should be utilized only in liability cases in which true concurrent causes, each originating from an independent act of negligence, simultaneously join together to produce injury. Therefore, as will appear, we conclude this case should be remanded to the Court of Appeal with directions to remand to the trial court for a jury determination of causation pursuant to Sabella, supra, 59 Cal.2d 21, 27 Cal.Rptr. 689, 377 P.2d 889.

I.

FACTS

Plaintiffs bought their house in the mid-1970's. In 1977, plaintiffs purchased from State Farm Fire and Casualty Company (hereafter defendant) an "all risk" homeowner's policy of insurance which was in effect at all times relevant. Section I of the policy in question provided coverage for "all risks of physical loss to the property covered" except as otherwise excluded or limited. Losses excluded by this portion of the policy included those "caused by, resulting from, contributed to or aggravated by any earth movement, including but not limited to earthquake, volcanic eruption, landslide, mudflow, earth sinking, rising or shifting," and losses caused[48 Cal.3d 400] "by ... settling, cracking, shrinkage, bulging or expansion of pavements, patios, foundations, walls, floors, roofs or ceilings...."

In August 1978, plaintiffs noticed that a house addition, built in the early 1960's, had begun to pull away from the main structure. They also discovered damage to a deck and garden wall. There ensued numerous phone calls, letters, meetings and investigations as plaintiffs tried to determine from defendant whether the damage was covered by their homeowner's property insurance policy.

In October 1979, after receiving from its counsel an opinion that the loss was not

Page 294

[770 P.2d 706] covered, defendant notified plaintiffs by letter that the "policy excludes coverage for the loss herein. Normally, such a denial of coverage would leave you to your remedies. [p ] However, because the company wishes to resolve the coverage issue in an atmosphere free from extraneous matters such as bad-faith and class action issues, the company is prepared to advance you the claimed sum of $11,550 subject to a reservation of rights as authorized by Johansen v. CSAA, [1975], 15 Cal.3d 9 [123 Cal.Rptr. 288, 538 P.2d 744]...." Under the agreement proposed, defendant would make the advance and file a declaratory relief action on the issue of coverage; plaintiffs would pay back the advance if the court ruled in defendant's favor, would waive "any claim of consequential or punitive damages arising out of any allegation of bad-faith, mental distress, oppression, fraud or insurance-related tort," and would not "institute any class-action against defendant on account of the facts and issues involved in this loss and claim."

After refusing to sign the foregoing agreement, plaintiffs sued, claiming that although their policy excluded coverage for losses caused or aggravated by earth movement, it implicitly provided coverage for losses caused by contractor negligence because negligence was not a specifically excluded peril under the policy. Plaintiffs also argued that defendant denied their claim before adequately investigating the damage to the structure, and that subsequent investigations were undertaken merely to confirm the original denial. In addition, plaintiffs asserted, defendant's denial of coverage constituted a breach of the implied covenant of good faith and fair dealing and violated various provisions of the Insurance Code. Plaintiffs sought as relief (i) policy benefits, (ii) general damages for economic detriment and emotional distress, and (iii) punitive damages.

Defendant rested on the 12th day of trial, and the court granted a directed verdict for plaintiffs on the coverage issue. The court informed the parties it was following the decisions in Partridge, supra, 10 Cal.3d 94, 109 Cal.Rptr. 811, 514 P.2d 123, and Sabella, supra, 59 Cal.2d 21, 27 Cal.Rptr. 689, 377 P.2d 889, and that plaintiffs were covered under the policy because negligent construction, a covered risk, was a concurrent [48 Cal.3d 401] proximate cause of the damage. Specifically, the trial court stated: "[The Supreme Court] told me in Sabella that negligent construction can be a proximate cause. They told me in Partridge there may be coverage whenever an insured risk constitutes simply a concurrent proximate cause of the injuries. [p ] Now, to me that is crystal clear, putting those two causes together, that if negligent construction is a concurrent proximate cause of the loss, there is coverage." The court continued, "The key witness for the defense, Mr. Nelson, conceded in his testimony, as I heard it and understood it, that the negligent construction was a cause of the room falling away. He did not use the word 'proximate.' He said a causative factor at one time. I don't recall the exact language when he answered a question. In substance, that it was a cause on another occasion. As a matter of law, based upon the evidence, it was a proximate cause."

The jury subsequently found defendant liable for $47,000 in policy benefits and general damages, and $1 million in punitive damages. The court denied defendant's motions for judgment notwithstanding the verdict and for a new trial, and declined to issue a remittitur with respect to the punitive damages award. The court entered judgment in accordance with the verdict. Defendant appealed, and the Court of Appeal reversed the judgment in a divided opinion. Before reviewing the Court of Appeal holding, and in order to provide sufficient background information that will aid in the understanding of this case, we first discuss the development of multiple and concurrent causation insurance analyses, and the important distinction between property and liability policies.

II.

DISCUSSION

A. Development of Multiple Causation Insurance Coverage Analyses

1. The efficient proximate cause standard

Our courts have long struggled to enunciate principles that determine whether coverage

Page 295

[770 P.2d 707] exists when excluded and covered perils interact to cause a loss. Initially, the courts attempted to reconcile section 530 (which provides for coverage when a peril insured against was the "proximate cause" of loss) with section 532 (which provides, that "If a peril is specifically 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 [from coverage] even though the...

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  • Pension Trust Fund v. Federal Ins. Co., No. 00-17055.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • October 1, 2002
    ...In such cases, discerning the primary cause of the harm from among multiple perils is critical. Garvey v. State Farm Fire & Cas. Co., 48 Cal.3d 395, 406-07, 257 Cal.Rptr. 292, 770 P.2d 704 (1989). California law, however, distinguishes between first-party indemnity insurance and third-party......
  • Atlantic Mut. Ins. Co. v. Ruiz, No. H025852.
    • United States
    • California Court of Appeals
    • November 5, 2004
    ...narrowly, whereas clauses identifying coverage are interpreted broadly. [Citation.]" (Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 406, 257 Cal.Rptr. 292, 770 P.2d Atlantic Mutual admits that "[t]he [policy] definition of insured does not specifically limit coverage to tho......
  • People v. N. River Ins. Co., B271421
    • United States
    • California Court of Appeals
    • December 20, 2017
    ...is an act or omission that sets in motion a chain of events that produces" the injury]; Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 402, 257 Cal.Rptr. 292, 770 P.2d 704 [in the insurance context, noting that the " ‘ "efficient" ’ " "proximate cause" among multiple causes ......
  • Howard v. Am. Nat'l Fire Ins. Co., Nos. A121569, A123187.
    • United States
    • California Court of Appeals
    • November 23, 2010
    ...covenant of good faith and fair dealing depend on the contractual purposes]; see also Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 406, 257 Cal.Rptr. 292, 770 P.2d 704 [distinguishing first and third party insurance coverage].) Although the same implied covenant of good fa......
  • Request a trial to view additional results
276 cases
  • Pension Trust Fund v. Federal Ins. Co., No. 00-17055.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • October 1, 2002
    ...In such cases, discerning the primary cause of the harm from among multiple perils is critical. Garvey v. State Farm Fire & Cas. Co., 48 Cal.3d 395, 406-07, 257 Cal.Rptr. 292, 770 P.2d 704 (1989). California law, however, distinguishes between first-party indemnity insurance and third-party......
  • Atlantic Mut. Ins. Co. v. Ruiz, No. H025852.
    • United States
    • California Court of Appeals
    • November 5, 2004
    ...narrowly, whereas clauses identifying coverage are interpreted broadly. [Citation.]" (Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 406, 257 Cal.Rptr. 292, 770 P.2d Atlantic Mutual admits that "[t]he [policy] definition of insured does not specifically limit coverage to tho......
  • People v. N. River Ins. Co., B271421
    • United States
    • California Court of Appeals
    • December 20, 2017
    ...is an act or omission that sets in motion a chain of events that produces" the injury]; Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 402, 257 Cal.Rptr. 292, 770 P.2d 704 [in the insurance context, noting that the " ‘ "efficient" ’ " "proximate cause" among multiple causes ......
  • Howard v. Am. Nat'l Fire Ins. Co., Nos. A121569, A123187.
    • United States
    • California Court of Appeals
    • November 23, 2010
    ...covenant of good faith and fair dealing depend on the contractual purposes]; see also Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 406, 257 Cal.Rptr. 292, 770 P.2d 704 [distinguishing first and third party insurance coverage].) Although the same implied covenant of good fa......
  • Request a trial to view additional results

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