Safeco Ins. Co. of America v. Guyton

• Decision Date: 21 March 1979
• Docket Number: No. CV 76-3488,CV 77-3373,CV 77-2761,CV 77-2759,CV 77-3372,CV 77-680,CV 77-2757,CV 77-384,CV 77-2775,CV 77-2758,CV 77-956,CV 77-2763,CV 77-383,CV 77-3390 and CV 77-3780.,CV 77-2762,CV 76-3488
• Citation: 471 F. Supp. 1126
• Parties: SAFECO INSURANCE COMPANY OF AMERICA, Plaintiff, v. William GUYTON et al., Defendants. STATE FARM FIRE & CASUALTY COMPANY, Plaintiff, v. David DeLANCY et al., Defendants. GENERAL ACCIDENT FIRE & LIFE ASSURANCE CORPORATION et al., Plaintiffs, v. Vernton M. BARTON et al., Defendants. AETNA CASUALTY & SURETY COMPANY, Plaintiff, v. Harry R. NUDD et al., Defendants. SAFECO INSURANCE COMPANY OF AMERICA, Plaintiff, v. Michael PURPURA et al., Defendants, and Other Consolidated Cases as Listed by Number.
• Court: U.S. District Court — Central District of California

471 F. Supp. 1126

SAFECO INSURANCE COMPANY OF AMERICA, Plaintiff, v. William GUYTON et al., Defendants.

STATE FARM FIRE & CASUALTY COMPANY, Plaintiff, v. David DeLANCY et al., Defendants.

GENERAL ACCIDENT FIRE & LIFE ASSURANCE CORPORATION et al., Plaintiffs, v. Vernton M. BARTON et al., Defendants.

AETNA CASUALTY & SURETY COMPANY, Plaintiff, v. Harry R. NUDD et al., Defendants.

SAFECO INSURANCE COMPANY OF AMERICA, Plaintiff, v. Michael PURPURA et al., Defendants, and Other Consolidated Cases as Listed by Number.

Nos. CV 76-3488, CV 77-383, CV 77-384, CV 77-680, CV 77-956, CV 77-2757, CV 77-2758, CV 77-2759, CV 77-2761, CV 77-2762, CV 77-2763, CV 77-2775, CV 77-3372, CV 77-3373, CV 77-3390 and CV 77-3780.

United States District Court, C. D. California.

March 21, 1979.

Gerald M. Lachowicz, Irene M. Boyd and Jeffrey H. Leo of Long & Levit, Los Angeles, Cal., for plaintiff.

Jerrold A. Fadem and Richard D. Norton of Fadem, Berger, McIntire & Norton, Santa Monica, Cal., David P. DeLancy, Corona del Mar, Cal., Gerald D. Shoaf of Redwine & Sherrill, Riverside, Cal., Frederick V. Geisler of Iverson, Yoakum, Papiano & Hatch, Los Angeles, Cal., and William A. Francis of Irsfeld, Irsfeld & Younger, Hollywood, Cal., for defendants.

OPINION

SOLOMON, Judge:

Plaintiffs insurance companies filed these actions to obtain judgments declaring that the insurance policies which they issued excluded flood damage and therefore do not cover the losses to real and personal property which the policyholders sustained as a result of a flood which occurred on September 10, 1976, in Palm Desert, California.

The defendant insureds, in their answers, assert that the losses were proximately caused by the negligence of third parties and are therefore covered by the policies. They also demand damages, including punitive damages, because the insurance companies failed to pay these losses.

The cases were consolidated for trial and were tried before me, without a jury, on the segregated issue of coverage.

It was agreed that I would not decide whether there was third party negligence or whether that negligence, if any, was a proximate cause of the loss; I was merely to decide if in these cases the policies insured against damage which was a proximate result of third party negligence; and, if so, the cases would then be submitted to one or more juries on the issues of proximate cause and damages.

If, however, I find that under the facts of these cases, the exclusions in the policies, particularly the flood damage exclusion, prevented the insureds from recovering, even if there was third party negligence which was a proximate cause of the loss, then I would enter judgments in favor of plaintiff insurance companies.

These cases were submitted on the pleadings, witness statements, exhibits, depositions and testimony taken before Judge Warren Ferguson in the case of PDTC Owners Association, et al. v. Coachella Valley County Water District, 443 F.Supp. 338, which was consolidated with a group of other cases.

On September 10, 1976, record rains accompanying Hurricane Kathleen broke through flood control facilities and inundated parts of the City of Palm Desert, California.

"Tropical Cyclone Kathleen moved through the western United States on September 10-12, 1976. The storm caused 5 deaths in the United States, more than 150 million dollars in damage, localized rain amounts of greater than 10 inches, and winds in excess of 50 knots. It was the first major tropical cyclone to hit the western United States since 1939." NOAA Technical Memorandum NWS WR-114, National Oceanic and Atmospheric Administration, National Weather Service, at 1-2.

The U. S. Geological survey reports:

"Many of the entries represent the greatest discharges of the past decade or longer and, in some cases, the highest on record."

                                      "PEAK DISCHARGES, FLOODS OF SEPTEMBER
                                            1976, SOUTHERN CALIFORNIA
                Source   Number                                Drainage    Date   Peak Discharge
                           or                                    area      Sept
                         Letter     Stream and location         Sq. Mi.    1976   C.F.S.        
                         Misc (6)   Carrizo Creek nr Palm
                                    Desert 33° 39' 41"
                                    116° 24' 10"                  5.00      10      2,820
                         Misc (7)   Dead Indian Creek nr
                                    Palm Desert 33° 40' 07"
                                    116° 25' 10"                  9.02      10      8,900"
                (Floods of September 1976, U. S. Army Corps of Engineers, Los Angeles District, September
                1977, at 3 and 7.)
                

The insureds' properties are located in the portion of Coachella Valley which is an alluvial fan formed by runoff from Dead Indian Canyon, a natural drainage channel for water flowing from the San Jacinto Mountains south of the City. As the water from Dead Indian Canyon flows under State Highway 74, it meets the water from Carrizo Creek, and the waters merge to form a single stream.

Between 1939 and 1949, a channel and a sand levee were built to keep the single stream in a natural flood channel to the east of the City. It is not known who built them, and they are outside the Water District's boundaries and jurisdiction. The State of California Department of Transportation (Caltrans) built some levees near State Highway 74 to control those waters. In 1955 and 1956, the Water District built a sand dike south of the City as the last of the flood control measures.

During the hurricane, the floodwaters overwhelmed all the structures and flooded the insureds' properties.¹

Each policy was known as All Risk-Home Owner's Policy. Nevertheless each policy contained a number of exclusions, such as exclusions for war and nuclear reaction, radiation and contamination. It also contained deductible provisions and additional exclusions relating to specific coverages.

The exclusions relevant to these cases are set forth in "ADDITIONAL EXCLUSIONS," which provides in pertinent part:

"THIS POLICY DOES NOT INSURE AGAINST LOSS:

. . . . .

1. CAUSED BY, RESULTING FROM, CONTRIBUTED TO OR AGGRAVATED BY ANY OF THE FOLLOWING:

a. FLOOD, SURFACE WATER, WAVES, TIDAL-WATER OR TIDAL WAVE, OVERFLOW OF STREAMS OR OTHER BODIES OF WATER, OR SPRAY FROM ANY OF THE FOREGOING, ALL WHETHER DRIVEN BY WIND OR NOT;

. . . . .

2. 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; . . .."

All parties agree that the insurance companies issued "all risk" homeowners' policies, that each of these policies contained an express "flood exclusion" and that the September 10, 1976 flood was a giant flood.

They also agree that the language of the exclusionary clauses is clear and unambiguous.

Nevertheless, the insureds contend that the losses which they sustained in this flood were not excluded but were covered by the policies.

They assert that the policies are ambiguous because they are called "all risk" policies and yet they have exclusions.

The insureds also assert that the companies that issued the policies and the people who purchased the policies intended that flood damage would entitle insureds to recover unless the flood damage was the sole cause of the loss.

There is no merit to any of these contentions.

All policies, including policies labeled all risk, have exclusions. The only limitation is that they must be clear and explicit and must not be illegal or absurd. Continental Casualty Co. v. Phoenix Construction Co., 46 Cal.2d 423, 296 P.2d 801 (1956).

This is the rule laid down in section 1638 of the California Civil Code relating to the interpretation of contracts, and the same rules apply to policies of insurance.

In fact, in Jarrett v. Allstate, 209 Cal. App.2d 804, 26 Cal.Rptr. 231 (1962), the court set out in detail the rules by which insurance contracts are to be interpreted in the State of California:

"Certain fundamental rules have been evolved with reference to the interpretation of insurance contracts. Thus it is a well-established principle that each clause of an insurance contract must be considered with reference to every other clause on which it has any bearing and all of the provisions are to be construed together for the purpose of ascertaining the intent of the parties. Citations. The primary object is to ascertain and carry out the intention of the parties. Citations. In construing insurance contracts, the standard to be used is the understanding of the ordinary person. Citations. If any ambiguity or uncertainty exists an insurance policy is construed strictly against the insurer and most liberally in favor of the insured. Citations. Where a policy provision is susceptible of two constructions, the one more favorable to the policyholder should be adopted. Citations. The rule of strict construction against the insurer and liberal construction in favor of the insured is particularly applicable where the policy provides for exceptions to or exclusions from the general import of the principal coverage clauses. The burden rests on the insurer to phrase such exceptions and exclusions in clear and unmistakable language. Citations. This rule requiring all uncertainties, ambiguities, inconsistencies and doubtful provisions to be resolved against the insurer and in favor of the insured is subject to the important limitation, however, that it is applicable only when the policy actually presents such uncertainty, ambiguity,

...