Mission National Ins. Co. v. Coachella Valley Water Dist.

• Decision Date: 12 May 1989
• Docket Number: No. E004491,E004491
• Citation: 210 Cal.App.3d 484,258 Cal.Rptr. 639
• Court: California Court of Appeals Court of Appeals
• Parties: MISSION NATIONAL INSURANCE COMPANY, Plaintiff and Respondent, v. COACHELLA VALLEY WATER DISTRICT et al., Defendants and Appellants.

Page 639

258 Cal.Rptr. 639

210 Cal.App.3d 484

MISSION NATIONAL INSURANCE COMPANY, Plaintiff and Respondent, v. COACHELLA VALLEY WATER DISTRICT et al., Defendants and Appellants.

No. E004491.

Court of Appeal, Fourth District, Division 2, California.

May 12, 1989.

Review Denied July 27, 1989.

[210 Cal.App.3d 487] Redwine and Sherrill, E. Michael Kaiser and Gerald D. Shoaf, Thompson and Colegate, John A. Boyd and James D. Ward, Riverside, for defendants and appellants

Coachella Valley Water Dist. and E.L. Yeager Const. Co., Inc

Fisher & Hurst, Charles Negley, Peter O. Glaessner, and Lori A. Sebransky, San Francisco, for defendant and appellant Bechtel Civil & Minerals, Inc.

Simon, Buckner, Haile & Midgal, Brian P. Simon and Scott Simon, Marina Del Ray, for plaintiff and respondent Mission Nat. Ins. Co.

OPINION

HOLLENHORST, Associate Justice.

This appeal presents causation and coverage questions under an all-risk builder's risk insurance policy for a construction project.

The insurance company, plaintiff Mission National Insurance Company ("Mission"), paid benefits under the policy of $3,099,744.63 and brought this action to recover those benefits from the owner, defendant Coachella Valley Water District ("District"), and the builder, defendant Yeager Construction Company ("Yeager"). The designer of the project, Bechtel Civil & Minerals, Inc. ("Bechtel"), is a cross-defendant. All parties appeal from various portions of the judgment. ¹

FACTS

1. The Project.

The construction project is a five-mile long concrete-lined flood control channel in the vicinity of Palm Desert. Two concrete debris basins collect debris and stormwater from two canyon creeks and channel the water into another channel north of Palm Desert. The channel, which is west of Highway 74, runs generally south to north.

2. The Damage.

On August 17, 1983, the construction of the channel had been substantially completed. However, heavy rains beginning on that day undermined the walls and bottom of the channel. The damage to the walls and bottom of the channel included cracking, curvature of the walls, and uplifting of certain bottom sections. The damaged sections were subsequently replaced. Although the cause of the damage was in issue, Mission advanced approximately three million dollars to repair the damage. Mission then commenced this action to recover the money it advanced.

3. The Insurance Policy.

Three provisions of the insurance policy are at the heart of the coverage dispute. The first is the insuring clause. It states: "This Policy, subject to the limitations, exclusions, terms and conditions hereinafter mentioned, is to insure, in respect of occurrences happening during the period of this policy ... against All Risks of Physical Loss of or Damage to: a) Property in course of construction...." The parties generally agree that flood was a risk intended to be covered under this clause.

The second provision is an endorsement to the policy. The endorsement states: "It is further understood and agreed that the peril of flood is included in this policy. The definition of flood is as follows: Water damage caused by, contributed to or aggravated by any of the following: (1) Flood, surface water ... (3) Water below the surface of the ground including that which exerts pressure on or flows, seeps or leaks through ... foundations, walls, basement or other floors...." (Emphasis added.) Defendants rely on this endorsement.

The third clause is an exclusion which provides: "THIS POLICY DOES NOT COVER ... c) loss or damage directly or indirectly caused by fault, defect, error or omission in design, plan or specification." (Emphasis added.) Mission relies on this exclusion as the basis for this action. (See, generally, Annot. (1985) 41 A.L.R.4th 1095.)

4. The Findings of the Jury.

The jury returned a special verdict consisting of answers to six questions. By its answers, the jury found that the design of the channel was defective, that the damage to the channel was caused by the defect, that the defect was the efficient cause of damage to the channel, that flooding was a cause, but not the efficient cause, of damage to the channel, and that damages caused by the design defect were $3,059,973.63. Based on these findings, the trial court found that there was no coverage under the policy.

ISSUES PRESENTED

Since the coverage language in the subject policy allows recovery for water damage that is caused by flooding, the first issue is whether the causation issue was properly submitted to the jury for decision. Defendants Yeager, Bechtel, and the District generally argue that the jury was improperly instructed on causation issues.

Since the policy also allows recovery for damage caused by flooding that contributes to or aggravates the damage, the second issue is whether this language provides coverage even if flooding was not a proximate cause of the loss. Defendants Yeager, Bechtel, and the District argue that this language provides coverage as a matter of law. Plaintiff Mission contends that the trial court correctly submitted the case to the jury to decide all causation issues.

CAUSATION ISSUES

1. The Garvey Case.

In Garvey v. State Farm Fire & Cas. Co. (1989) 48 Cal.3d 395, 257 Cal.Rptr. 292, 770 P.2d 704, our Supreme Court "sought to resolve some of the confusion that has arisen regarding insurance coverage under the 'all-risk' section of a homeowner's insurance policy when loss to an insured's property can be attributed to two causes, one of which is a nonexcluded peril and the other an excluded peril." (Ibid.) Before discussing the case in detail, it is necessary to understand the statutes and the prior cases. ²

2. The Statutes.

The general rule is that an insurance company is liable when the insured peril proximately causes a loss. This rule is codified in Insurance Code section 530 which states: "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 he is not liable for a loss of which the peril insured against was only a remote cause."

This rule must be read with Insurance Code section 532, which states: "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."

3. The Efficient Proximate Cause Standard.

A leading case interpreting these sections is Sabella v. Wisler (1963) 59 Cal.2d 21, 27 Cal.Rptr. 689, 377 P.2d 889. In that case, a policy insured against "all physical loss" to a home, but excluded loss caused by settling. The builder constructed the home on uncompacted soil and negligently installed the sewer line. Water escaping from the broken sewer line caused settling of the home. Negligent installation of the sewer line was a covered peril but subsidence was an excluded peril. The court found that the insurance company was liable "because the rupture of the sewer line attributable to the negligence of a third party, rather than settling, was the efficient proximate cause of the loss." (Id., at p. 31, 27 Cal.Rptr. 689, 377 P.2d 889.) The court defined efficient proximate cause by quoting 6 Couch on Insurance (1930) section 1466: " '[I]n determining whether a loss is within an exception in a policy, where there is a concurrence of different causes, the efficient cause--the one that sets others in motion--is the cause to which the loss is to be attributed, though the other causes may follow it, and operate more immediately in producing the disaster.' " ³ (Id., at pp. 31-32, 27 Cal.Rptr. 689, 377 P.2d 889.)

In Garvey, the court reaffirmed Sabella, stating: "[Sabella ] set forth a workable rule of coverage that provides a fair result within the reasonable expectations of both the insured and the insurer whenever there exists a causal or dependent relationship between covered and excluded perils." (Garvey v. State Farm Fire & Cas. Co., supra, 48 Cal.3d at p. 404, 257 Cal.Rptr. 292, 770 P.2d 704.)

4. The Concurrent Causation Standard.

In certain cases, there is no "efficient proximate cause" because separate losses have been sustained from independent causes. The leading case discussing this situation is State Farm Mut. Auto. Ins. Co. v. Partridge (1973) 10 Cal.3d 94, 109 Cal.Rptr. 811, 514 P.2d 123. In that case, two negligent acts of the insured, one auto-related and one not auto-related, were concurrent causes of an accident. The court found that the Sabella analysis is not useful when the two causes are independent of each other. The court said: "Although there may be some question whether either of the two causes in the instant case can be properly characterized as the 'prime,' 'moving' or 'efficient' cause of the accident we believe that coverage under a liability insurance policy is equally available to an insured whenever an insured risk constitutes simply a concurrent proximate cause of the injuries. That multiple causes may have effectuated the loss does not negate any single cause; that multiple acts concurred in the infliction of injury does not nullify any single contributory act." (Id., at pp. 104-105, 109 Cal.Rptr. 811, 514 P.2d 123, fns. omitted.) Accordingly, the court concluded that "coverage is available whenever an insured risk constitutes a proximate cause of an accident, even if an excluded risk is a concurrent proximate cause...." (Id., at p. 105, fn. 11, 109 Cal.Rptr. 811, 514 P.2d 123. See also 18 Couch on Insurance (2d ed.1983) § 74:721, p. 1026.)

In Garvey, the court emphasized that Partridge dealt with causation only in the third party liability insurance context. The majority opinion states: "misinterpretation of the Sabella definition of 'efficient proximate cause' has added to the confusion in the courts and, in part, is responsible for the erroneous application of Partridge ... to...