California Court Rules That Homeowners' Insurers Must Cover the Most Important Cause of the Loss

February 09, 2016 California insurers must cover the "efficient proximate cause."

In a victory for California homeowners (as well as business owners), a California court of appeal recently held, in Vardanyan v. AMCO Ins. Co, that if a policyholder's loss is the result of more than one cause, the insurer can't necessarily use that mixture of causes to deny coverage. The policy must pay if the most important cause of the loss, known as the "efficient proximate cause," is among the types of damages the policy covers.

The Vardanyan case didn't look to be a sure winner. The house in question was, by the description in the court's opinion, a bit of a mess before its owner put in a claim for water damage to the flooring and for mold.

An independent insurance adjustor found, for example, multiple potential leaks in the roof, gutters in disrepair, downspouts disconnected from the gutters, evidence that a faucet or hose had been spraying the wall in one area for a significant length of time, a toilet and bathtub that both leaked, the floor beneath the bathtub sinking, water damage and past termite infestation in the kitchen, a living room floor that was not level and was separating from the wall, a subfloor area that lacked adequate ventilation, and more.

Nevertheless, the appeals court said that the jury in the court trial at least needed to consider whether, as the homeowner claimed, the main cause of the problem was "hidden decay," which was covered under the policy.

Why is this decision important? As pointed out by United Policyholders, it means that damage from a fire following an earthquake, a plausible scenario, remains covered in California.

If you live outside California, you may not enjoy the benefits of this type of a rule. Many insurers apparently include "anti-concurrent cause" ("ACC") wording in their policies. Such a clause serves to deny coverage where any contributing cause of a loss is among the policy exclusions.