Insurance Commissioner Orders Carriers to Pay for Mudslide Damages

On December 4, 2017, a massive fire – named the “Thomas Fire” – was ignited and was not contained until January 12. As of February 2018, the fire remained active and had destroyed nearly 300,000 acres (more than 450 square miles) of mostly rugged terrain in Santa Barbara and Ventura counties. More than 1,000 structures were destroyed and hundreds were damaged. Although this is the largest fire in California history, the insured loss ranks seventh at $2.5 billion.


The Mudslide and its Damage

Subsequently, in the early hours of January 9, 2018, a massive amount of rain fell at the rate of one inch per hour in the fire area. The vegetation in the foothills, which could have absorbed much of the rainfall, had been destroyed by the fire. As a result, mud, debris, sediment, rocks and plants began a destructive path toward the Pacific Ocean. The hardest hit were the towns of Montecito, Summerland and Carpinteria, where nearly one inch of rain fell during the first 10 minutes of the storm.

The debris floor of the mudslide and debris flow was 1,000 feet wide, and it changed the elevation in some neighborhoods by as much as six feet. In the aftermath, 82 million pounds of mud and debris were removed and taken to the Ventura County Fairgrounds for gradual relocation to other areas throughout the region.

128 homes in the Town of Montecito, where the median home price is $4 million, were destroyed. Another 307 houses were severely damaged. Although it is too early to understand the actual insured loss, it is currently estimated to be in the hundreds of millions of dollars. Tragically, the mudslide took the lives of 23 adults and children, the majority of whom were not under mandatory evacuation orders at the time.


Efficient Proximate Cause Doctrine

On January 29, Dave Jones, California’s Insurance Commissioner, issued a formal notice reminding carriers of their duty to cover damages from the recent mudslide and debris flow caused by the destruction of vegetation by fire which would have otherwise absorbed rainfall and held the soil in place. His explanation referenced the “efficient proximate cause doctrine.

This doctrine has its basis in the 1865 New York Civil Code, which was enacted in California in 1872, and became Section 530 of the first California Insurance Code in 1935. This remains in the Code today.

Under this doctrine, the efficient proximate cause of the loss is the one that sets the other causes in motion that in an unbroken sequence produces the damage. This should not be confused with the “Concurrent Causation Doctrine,” where separate excluded and covered causes (perils) simultaneously join to produce damage.


Court Cases Challenging the Doctrine

Since then, there have been many California court cases challenging this doctrine, several of which resulted from denial of claims for catastrophic damage caused by floods, earthquakes and landslides.

The most notable in recent memory are:

Guyton 1982, flood (excluded) but covered because the efficient proximate cause of loss was the water district’s negligence in its failure to provide adequate flood control facilities.

Welsh 1983, flood (excluded) but covered because the efficient proximate cause of loss was the faulty installation of a drain by a third party.

Motte 1984, earthquake (excluded) but covered because the earthquake was caused by tectonic plate movement, which was not excluded. To make matters worse, 1,678 single family homes were damaged or destroyed. Many had no outward damage but were determined to be constructive TOTAL losses because the wood frames had come apart at the corners, and claims were paid on that basis.

That same year (1984), Section 10088 was enacted by the California State Legislature as part of the Earthquake Insurance Act, requiring insurers of residential property to offer earthquake coverage. The courts, including the appellate court, have repeatedly said that CIC Section 10088 applies in all circumstances and that it precludes coverage for ALL earthquake-related losses absent specific earthquake coverage. This language was part of the negotiations with insurers, who lobbied to ensure that Section 530 would not apply in the absence of earthquake coverage on a policy. The only exception to this is in 10088.5, which does not exempt an insurer from its obligation under a fire insurance policy to cover the losses from a fire that is caused by or follows an earthquake.

As a result of these litigated cases and the catastrophic storms and historic rains during those years, which resulted in thousands of California homeowner flood and landslide claims, the Insurance Services Office (ISO) quickly revised the exclusions and replaced the term “all risks” with “risk of direct physical loss unless excluded or limited.”

Howell 1990, landslide (excluded) caused by heavy rains after a fire was covered because the California appellate court concluded that an insurer could not exclude coverage when an insured peril (fire) was the efficient proximate cause of loss. This case was brought after the ISO changes mentioned above.

Once again, ISO revised the language (known as “anti-concurrent causation” language) to clearly state that loss caused directly or indirectly by an excluded peril is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.

In a 2015 Texas case, the Fifth Circuit had the opportunity to develop case law involving the current ISO language in a case involving combinations of covered wind damage and excluded flood damage. In it, they concluded that the only damage covered under a policy with this anti-concurrent causation language was damage caused exclusively by wind. Texas insurers are now facing claims from Hurricane Harvey in which “anti-concurrent causation” language will no doubt be challenged again.



Currently, “anti-concurrent causation” language within an insurance policy is generally enforced. However, California – along with North Dakota, Washington and West Virginia – still refuses to enforce this language by case law or statute.

About the Author

This article was written by Kris Zebratski, CIC, CPRM, TRS, Senior Vice President and Personal Lines specialist with AmWINS Access in San Francisco, CA.

Contact Us

To learn more about how AmWINS can help you place coverage for your clients, reach out to your local AmWINS broker.  If you do not have a contact at AmWINS, please click here.

Legal Disclaimer. Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.

(c) 2017 AmWINS Group, Inc.

Most Popular Insights

Four Key Additional Insured Endorsements for Contractors


Construction contract negotiations, which determine the kind and amount of insurance required for a construction project, can be time-consuming, complicated and frustrating. Project owners require contractors on a project to name the project owner as an additional insured on the contractor’s casualty insurance program. It's important that both project owners and contractors understand the coverage provided by these additional insured endorsements. This article discusses four common ISO additional insured endorsements related to commercial general liability policies purchased by contractors, including their limitations, conditions and exclusions.

Claims Reporting: Better Late than Never?

A common complication during the claim process is the late reporting of claims. In some cases, a late claim can put the agent or broker's own E&O policy in jeopardy. There are many reasons for missing a reporting deadline; however, in most cases, they will not matter to the insurer or the courts. This article discusses typical claim reporting requirements, common causes of late reporting, and recommendations to mitigate the risk of late notice claim denials.

Understanding Property Theories of Recovery and Ensuing Loss Clauses

​The theories of recovery, as well as the ensuing loss provisions, contained in property insurance policies are often complex and, at times, seemingly in conflict. Although a policy may not directly address these theories, their application by courts plays a significant role in the coverage determination process after the claim. It is essential that brokers understand the primary theories of recovery – Efficient Proximate Cause, the Concurrent Causation Doctrine, and the Anti-Concurrent Causation Doctrine – in order to navigate the challenging post-claim process and effectively serve their clients.

Insurance Commissioner Orders Carriers to Pay for Mudslide Damages

The Thomas Fire, the largest fire in California's history, subsequently led to a mudslide on January 9, 2018, which caused a massive amount of damage in Santa Barbara and Ventura counties. The California Insurance Commissioner has issued a formal notice reminding carriers to pay for damage, citing the "efficient proximate cause doctrine." This article takes a closer look at the doctrine and how it has been challenged in court over the years.

Ordinance or Law Insurance Coverage

Ordinance or Law insurance coverage provides limited protection for costs associated with repairing, rebuilding, or constructing a structure when physical damage to the structure by a covered cause of loss triggers an ordinance or law. Compliance with ordinances and laws after a loss can add 50% or more to the cost of a claim. This article will help you educate your insureds on exclusions and limitations and help them take a proactive approach to their insurance program.

Employment Practices Liability in the Age of #MeToo

In 2017, the issue of sexual harassment – especially in the workplace – gained greater awareness as accusations of harassment by high-profile individuals were constantly in the news. In many cases, sexual harassment lawsuits seriously impacted businesses and their respective insurers. Employment Practices Liability Insurance not only provides protection against employee lawsuits, but can also help your clients mitigate their sexual harassment risks.

Sign Up For Our Monthly Newsletter

Sign Up