State?Farm?Fire?&?Casualty?Co.?v.?Von?Der?Lieth?(1991)?54?Cal.3d?1123?,?2?Cal.Rptr.2d?183;?820?P.2d?285
[No.?S019059.?Dec?16,?1991.]STATE?FARM?FIRE?AND?CASUALTY?COMPANY,?Plaintiff,?Cross-defendant?and?Appellant,?v.?ERIC?VON?DER?LIETH?et?al.,?Defendants,?Cross-complainants?and?Appellants.
(Superior?Court?of?Los?Angeles?County,?No.?WEC?097757,?William?E.?McGinley,?Judge.)
(Opinion?by?Lucas,?C.?J.,?expressing?the?unanimous?view?of?the?court.)
COUNSEL
Knapp,?Petersen?&?Clarke,?Ryan?C.?Knapp,?Peter?J.?Senuty,?Horvitz?&?Levy,?Ellis?J.?Horvitz?and?Peter?Abrahams?for?Plaintiff,?Cross-?defendant?and?Appellant.?[54?Cal.3d?1126]
Thornton,?Taylor,?Downs?&?Becker,?Clarke?B.?Holland,?Michael?F.?Scully,?Rogers,?Joseph,?O’Donnell?&?Quinn,?Susan?M.?Popik,?Robie?&?Matthai,?James?R.?Robie?and?Pamela?E.?Dunn?as?Amici?Curiae?on?behalf?of?Plaintiff,?Cross-defendant?and?Appellant.
Lillick?&?McHose,?Pillsbury,?Madison?&?Sutro,?Kenneth?R.?Chiate,?John?R.?Cadarette,?Jr.,?Berger?&?Norton,?Michael?M.?Berger,?Richard?D.?Norton?and?Ann?E.?Kelly?for?Defendants,?Cross-complainants?and?Appellants.
OPINION
LUCAS,?C.?J.
We?granted?review?in?this?case?to?resolve?a?conflict?in?the?Courts?of?Appeal?concerning?whether?courts?should?distinguish?between?types?of?negligence?when?analyzing?coverage?in?the?first?party?homeowners?property?insurance?context.?(See?Garvey?v.?State?Farm?Fire?&?Casualty?Co.?(1989)?48?Cal.3d?395,?408-409,?fn.?7?[257?Cal.Rptr.?292,?770?P.2d?704]?(Garvey).)?This?conflict?arises?from?different?interpretations?of?our?observation?in?Garvey?suggesting?a?property?insurer?may?deny?coverage?when?homeowners?construct?improvements?on?the?insured?premises?in?order?to?protect?the?property?from?the?operation?of?a?specifically?excluded?risk.?(Ibid.)
As?we?explain,?we?conclude?the?Court?of?Appeal?erred?in?reversing?judgment?for?the?insureds.?In?our?view,?the?jury?correctly?determined?that?third?party?negligence?was?the?efficient?proximate?cause?of?the?loss?and?that?State?Farm?Fire?and?Casualty?Company?therefore?was?liable?for?damages?suffered?by?the?insureds.?In?addition,?we?explain?that?our?observation?in?Garvey,?supra,?48?Cal.3d?at?pages?408-409,?footnote?7,?has?no?application?in?cases?involving?landslide?or?earth?movement?precipitated?by?the?negligent?acts?of?third?parties.?Accordingly,?we?reverse?the?judgment?of?the?Court?of?Appeal?and?remand?the?cause?for?further?proceedings?consistent?with?this?opinion.
- Facts
The?Von?Der?Lieths?(cross-complainants?and?insureds,?hereafter?insureds)?are?homeowners?in?the?Big?Rock?Mesa?area?of?Malibu,?California,?an?area?that?has?experienced?massive?landsliding?for?several?years.?Insureds?purchased?their?home?in?1976.?In?fall?1983,?the?County?of?Los?Angeles?(hereafter?the?County)?informed?them?that?an?incipient?landslide?might?be?developing?on?the?mesa.?They?subsequently?noticed?cracking?in?the?interior?and?exterior?walls,?patio,?and?front?steps?of?their?home.?[54?Cal.3d?1127]
Since?1976,?plaintiff?State?Farm?Fire?and?Casualty?Company?(State?Farm)?provided?insureds?with?an?all-risk?homeowner’s?policy.?At?the?time?of?the?loss,?the?policy?provided?coverage?for?”all?risks?of?physical?loss?to?the?property?…?except?for?loss?caused?by?…?settling,?cracking,?shrinking,?bulging,?or?expansion?of?pavements,?patios,?foundations,?walls,?floors,?roofs?or?ceilings”?and?for?”loss?resulting?directly?or?indirectly?from:?…?Earth?Movement?…?Water?Damage,?meaning;?…?(c)?natural?water?below?the?surface?of?the?ground,?including?water?which?exerts?pressure?on,?or?seeps?or?leaks?through?a?building,?sidewalk?driveway,?foundation,?swimming?pool?or?other?structure.”?Because?the?policy?did?not?expressly?exclude?coverage?for?losses?caused?by?the?negligence?of?third?parties,?such?negligence?was?a?covered?risk.?(Garvey,?supra,?48?Cal.3d?at?p.?408.)
In?April?1984,?insureds?submitted?a?claim?to?State?Farm?for?damage?to?their?house.?On?December?15,?1985,?State?Farm?paid?insureds?$14,075.71,?to?cover?physical?damage?to?the?dwelling?only.?State?Farm?informed?insureds?that?this?initial?payment?did?not?include?payment?for?”soil?work?or?stabilization?of?site?upon?which?this?structure?is?situated.”?Insureds,?through?their?counsel,?demanded?the?policy?limits?of?$231,000?based?on?their?belief?that?in?order?to?stabilize?the?ground?underneath?their?home,?the?entire?mesa?required?stabilization.
Thereafter,?State?Farm?filed?a?complaint?in?declaratory?relief,?asserting?that?insureds’?policy?did?not?cover?losses?caused?by?”earth?movement?or?natural?groundwater,”?because?those?types?of?risks?were?specifically?excluded?under?the?homeowner’s?policy.?State?Farm?also?asserted?its?policy?did?not?insure?the?cost?of?stabilizing?the?land?under?the?insured?premises.?Insureds?cross-complained?for?bad?faith,?breach?of?contract,?and?intentional?and?negligent?infliction?of?emotional?distress,?and?sought?declaratory?relief?in?their?favor?in?the?amount?of?the?policy?limits.?The?action?was?consolidated?with?three?related?suits?that?were?settled?prior?to?this?appeal.
Insureds?contended?at?trial?that?third?party?negligence?was?the?efficient?proximate?cause?of?their?loss.?They?assigned?negligence?to?a?number?of?individuals?and?entities,?including?the?State?of?California,?for?removing?a?portion?of?the?Big?Rock?Mesa?mountain?slope?to?construct?the?Pacific?Coast?Highway?in?the?1930’s,?and?the?developer?of?the?property?for?failing?to?provide?needed?protection?from?landslide?activation.?Insureds?also?blamed?a?local?homeowners’?organization?for?its?failure?to?maintain?its?drain?systems?and?county-required?pumping?systems?(specifically?designed?to?prevent?rising?groundwater),?and?other?homeowners?for?their?failure?to?properly?maintain?their?septic?tank?systems?so?that?the?systems?did?not?affect?the?groundwater?level.?Finally,?insureds?claimed?the?County?acted?negligently?in?approving?the?project?originally?and?in?failing?to?compel?dewatering?(a?[54?Cal.3d?1128]?comprehensive?system?of?drains?to?prevent?groundwater?from?rising)?before?1983?contrary?to?the?express?recommendation?of?the?county?engineer.
Insureds?presented?expert?testimony?on?the?causes?of?the?loss?and?on?the?history?of?earth?movement?in?the?area.?Their?experts?testified?that?the?recent?earth?movement?was?caused?by?an?increase?in?the?groundwater?level?due?primarily?to?the?use?of?septic?waste?disposal?systems.
The?evidence?established?that?Big?Rock?Mesa?had?been?the?site?of?six?ancient?landslides,?and?minor?recorded?slides?caused?by?rainfall.?The?testimony?also?showed?that?the?mesa?had?been?rendered?less?stable?by?the?soil?removal?in?1933?at?the?base?of?the?ocean?cliff.
When?the?original?housing?tracts?on?the?mesa?were?approved?by?the?County?in?1962,?the?County?was?concerned?that?the?use?of?septic?tank?waste?disposal?systems?might?elevate?the?groundwater?level?and?reactivate?the?prehistoric?landslide?activity.?Nonetheless,?relying?on?a?report?prepared?by?the?developer’s?geologist,?the?County?allowed?the?development?to?proceed?with?a?septic?tank?system,?on?condition?that?the?developer?(i)?install?and?maintain?four?horizontal?drains,?or?hydraugers,?in?the?side?of?the?bluff?to?drain?surface?water,?and?(ii)?create?an?entity?responsible?for?maintaining?the?hydraugers.
In?an?attempt?to?comply?with?the?above?conditions,?the?developer?formed?the?Malibu?Mutual?Drainage?Company?(hereafter?MMDC),?consisting?of?the?original?70?homeowners?at?the?time?the?first?tract?was?developed.?In?1973,?a?County?engineer?recommended?a?dewatering?program?that?was?not?pursued.?The?MMDC?dissolved?in?1975,?and?various?pumping?wells?on?the?mesa?operated?by?the?homeowners?were?abandoned.?These?actions?contributed?to?the?rise?in?groundwater?level?on?the?mesa.
In?1983,?several?homeowners?formed?the?Concerned?Citizens?for?Water?Control?(CCWC),?and?insureds?contributed?$1,100?to?the?organization.?CCWC?hired?D.A.?Evans,?Inc.,?to?refurbish?the?existing?dewatering?wells?on?the?mesa,?install?new?dewatering?wells,?and?monitor?land?movement.
In?December?1983,?the?County?formed?an?improvement?district?and?hired?D.A.?Evans,?Inc.,?to?provide?landslide?mitigation?efforts?in?the?area.?The?district?installed?additional?horizontal?drains,?reactivated?existing?hydraugers,?and?monitored?ground?movement.?At?the?time?of?trial,?the?district?was?designing?a?surface?drainage?system?and?continuing?to?pump?the?dewatering?wells?and?monitor?the?hydraugers.?The?district?incurred?expenses?of?$2.8?million?through?the?date?of?trial?and?estimated?spending?a?total?of?$4?million?to?complete?the?project.?The?district?had?authority?to?spend?up?to?$4.8?[54?Cal.3d?1129]?million,?which?would?result?in?an?individual?assessment?to?the?homeowners?of?not?less?than?$17,606.
Insureds’?home?consisted?of?wood?construction?on?a?concrete?slab,?with?a?stucco?exterior?and?a?dry?wall?interior.?It?exhibited?cracks?in?the?walls,?patio,?and?front?steps,?and?a?tilt?of?three?to?four?inches?from?front?to?rear?in?the?slab.?Conflicting?opinions?were?offered?regarding?whether?the?damage?was?the?result?of?landslide?movement?or?settling?due?to?differences?in?the?depth?of?the?landfill?under?the?dwelling.?Insureds?conceded?that?they?had?been?compensated?by?State?Farm?for?the?physical?damage?to?their?house,?not?including?stabilization?costs.
The?jury?returned?a?special?verdict?finding?State?Farm?had?breached?the?terms?of?the?policy?by?failing?to?pay?insureds?the?full?costs?of?repair?due?under?the?policy?and?had?acted?in?bad?faith?in?doing?so.?It?awarded?insureds?$1,100?for?reasonable?costs?incurred?to?repair?their?property?to?protect?it?from?further?damage,?and?compensatory?damages?of?$55,000?for?State?Farm’s?breach?of?contract,?breach?of?the?covenant?of?good?faith?and?fair?dealing,?and?unfair?claims?practices.?The?jury?also?determined?that?third?party?negligence?was?the?efficient?proximate?cause?of?the?damage?and?that?State?Farm?had?not?failed?to?pay?for?covered?physical?damage.?It?further?decided?that?State?Farm?was?not?responsible?under?its?policy?for?the?cost?of?stabilizing?the?land?beneath?the?dwelling.?Both?parties?filed?motions?for?judgment?notwithstanding?the?verdict,?and?insureds?also?filed?a?motion?for?new?trial.?All?three?motions?were?denied.?State?Farm?appealed?the?$55,000?judgment?for?insureds,?and?insureds?cross-appealed,?claiming?they?were?entitled?to?the?policy?limits?($231,000),?in?order?to?stabilize?the?ground?underlying?and?supporting?their?property.
The?Court?of?Appeal?Holding
The?Court?of?Appeal?reversed?the?judgment?and?held?that?the?efficient?proximate?cause?of?the?damage?to?insureds’?home?was?earth?movement,?an?excluded?risk.?The?court?believed?the?rising?groundwater?level?due?to?septic?systems?on?the?mesa?precipitated?the?earth?movement.?This?rising?groundwater,?the?court?reasoned,?was?also?an?excluded?risk?under?the?policy?provision?excluding?loss?caused?by?”natural?water?below?the?surface?of?the?ground,?including?water?which?exerts?pressure?on,?or?seeps?or?leaks?through?a?building,?sidewalk,?driveway,?foundation,?swimming?pool?or?other?structure.”?The?Court?of?Appeal?rejected?insureds’?contention?that?the?elevation?of?the?water?level?did?not?involve?”natural?water”?as?contemplated?by?the?exclusion,?because?the?groundwater?flowed?from?the?septic?system,?an?”artificial”?source?of?water.?[54?Cal.3d?1130]
Although?noting?that?uncertainties?in?policy?language?must?be?resolved?in?favor?of?insured’s?reasonable?expectations,?the?Court?of?Appeal?concluded?this?general?rule?could?not?assist?the?coverage?claim?here.?The?court?held?that?an?ordinary?insured?could?not?reasonably?believe?the?exclusion?applied?to?pure,?natural?groundwater?only.?Rather,?the?court?concluded,?the?language?of?the?exclusion?was?meant?to?distinguish?between?groundwater,?an?excluded?risk,?and?”water?emitting?from?a?burst?pipe,”?a?covered?risk.?The?court?also?noted?the?policy?excluded?damage?caused?by?”leakage?or?seepage?of?water?…?from?any?…?plumbing?system.”
Alternatively,?the?court?reasoned?that?even?if?it?were?to?assume?the?building?of?the?Pacific?Coast?Highway,?the?failure?to?timely?dewater?the?mesa,?and?poor?maintenance?of?the?mesa,?amounted?to?negligent?acts?under?insureds’?policy,?those?acts?were?excluded?from?coverage?by?Garvey,?supra,?48?Cal.3d?at?pages?408-409,?footnote?7,?because?they?were?not?”distinct”?from?other?excluded?risks.
In?so?holding,?the?court?observed?that?in?Garvey,?supra,?we?left?open?the?question?whether?courts?should?distinguish?between?different?types?of?third?party?negligence?when?determining?whether?such?negligence?could?ever?be?considered?a?covered?cause?under?an?all-risks?homeowner’s?policy.?We?stated,?”For?example,?if?construction?is?undertaken?on?the?insured?premises?for?the?sole?purpose?of?protecting?against?the?operation?of?a?specifically?excluded?risk?under?the?homeowner’s?policy,?and?that?improvement?subsequently?fails?to?serve?its?purpose?because?it?was?negligently?designed?or?constructed,?the?damage?to?the?structure?should?arguably?not?be?covered.?On?the?other?hand,?ordinary?negligence?that?contributes?to?property?loss,?but?does?not?involve?acts?undertaken?to?protect?against?an?excluded?risk,?may?give?rise?to?coverage?under?an?all-risk?policy.?…”?(48?Cal.3d?at?pp.?408-409,?fn.?7.)
In?addition,?the?Court?of?Appeal?herein?found?that?the?state’s?conduct?in?removing?the?toe?of?the?Big?Rock?Mesa?in?order?to?construct?the?Pacific?Coast?Highway?in?1933?was?”simply?too?remote?to?be?regarded?as?an?efficient?proximate?cause?of?the?damage.”?The?court?also?observed?that?it?failed?”to?see?how?the?County’s?failure?to?prevent?the?excluded?loss?could?transform?it?to?an?included?one.”
The?court?determined?that?the?jury?erroneously?concluded?negligence?was?the?efficient?proximate?cause?of?the?loss?because?it?was?improperly?instructed?under?Sabella?v.?Wisler?(1963)?59?Cal.2d?21,?31-32?[27?Cal.Rptr.?689,?377?P.2d?889]?(Sabella),?on?the?prerequisites?for?reaching?an?efficient?proximate?cause?determination.?As?the?Court?of?Appeal?observed,?Sabella,?supra,?held?that?when?dependent?concurrent?causes?interact?to?create?property?loss,?the?[54?Cal.3d?1131]?loss?must?be?attributed?to?the?”moving”?or?”triggering?cause.”?Here,?the?jury?was?instructed?pursuant?to?Sabella,?supra,?that?the?”efficient?proximate?cause?of?the?loss,?where?there?are?concurring?causes,?is?the?one?that?sets?the?others?in?motion.?The?efficient?proximate?cause?is?the?one?to?which?the?loss?is?to?be?attributed,?though?other?causes?may?follow?it?and?operate?more?immediately?in?producing?the?loss.”?(See?ibid.)
In?Garvey,?supra,?we?approved?Sabella’s?dependent?concurrent?causation?analysis,?but?modified?its?test?for?determining?the?efficient?proximate?cause?of?a?loss?by?noting?that?we?”use?the?term?’efficient?proximate?cause’?(meaning?predominating?cause)?when?referring?to?the?Sabella?analysis?because?we?believe?the?phrase?’moving?cause’?can?be?misconstrued?to?deny?coverage?erroneously,?particularly?when?it?is?understood?literally?to?mean?the?’triggering’?cause.?Indeed,?we?believe?misinterpretation?of?the?Sabella?definition?of?’efficient?proximate?cause’?has?added?to?the?confusion?in?the?courts?….”?(Garvey,?supra,?48?Cal.3d?at?pp.?403-404.)
As?we?explain,?we?conclude?the?decision?of?the?Court?of?Appeal?should?be?reversed.?The?court’s?determination,?that?earth?movement?caused?by?rising?groundwater?levels?was?the?efficient?proximate?cause?of?the?loss,?was?erroneous?under?these?facts.?In?addition,?the?court’s?conclusion?that?there?was?no?coverage?under?the?homeowner’s?policy?even?if?third?party?negligence?was?the?efficient?proximate?cause?of?the?loss,?because?the?asserted?acts?of?negligence?did?not?involve?risks?separate?from?excluded?perils,?conflicts?not?only?with?policy?provisions?and?principles?of?coverage?as?discussed?in?Garvey,?supra,?48?Cal.3d?395,?but?also?with?the?Court?of?Appeal’s?decision?in?Davis?v.?United?Services?Auto.?Assn.?(1990)?223?Cal.App.3d?1322?[273?Cal.Rptr.?224]?(Davis),?which?we?approve.?(See?also?Winans?v.?State?Farm?Fire?&?Cas.?Co.?(S.D.Cal.?1990)?743?F.Supp.?733,?736?(Winans)?[construction?negligence?resulting?in?earth?settlement?is?separate?act?not?subject?to?earth?movement?exclusion?in?all-risk?policy].)
- Discussion
- The?Efficient?Proximate?Cause?of?the?Loss
Here,?there?were?several?causes?of?the?loss:?(i)?earth?movement?caused?by?rising?groundwater?levels,?and?(ii)?negligence?of?certain?entities?and?parties?in?failing?to?take?proper?measures?to?preserve?the?mesa.?[2a]?Insureds?first?contend?the?Court?of?Appeal?erroneously?concluded?that?under?Garvey,?supra,?48?Cal.3d?at?pages?403-404,?earth?movement,?an?excluded?cause,?was?the?efficient?proximate?cause?of?the?loss.
In?determining?that?earth?movement?resulting?from?the?rising?groundwater?level?on?the?mesa?was?the?efficient?proximate?cause?of?the?loss,?the?Court?of?Appeal?relied?on?our?observation?in?Garvey,?supra,?48?Cal.3d?at?page?408,?that?remote?causes?of?a?loss?should?not?amount?to?covered?causes.?Garvey?reasoned?that?”if?the?insurer?is?expected?to?cover?claims?that?are?outside?the?scope?of?the?first?party?property?loss?policy,?an?’all?risk’?policy?would?become?an?’all?loss’?policy.?[Citation].?In?most?instances,?the?insured?can?point?to?some?arguably?covered?contributing?factor.?…”
The?Court?of?Appeal?relied?on?the?above?language?to?conclude?that?third?party?negligence?was?too?remote?a?cause?to?give?rise?to?coverage?under?insureds’?homeowner’s?policy.?In?so?doing,?however,?the?court?overlooked?an?important?point?regarding?the?scope?of?an?all-risks?homeowner’s?policy.?[3]?We?emphasized?in?Garvey,?supra,?48?Cal.3d?at?page?408,?that?if?third?party?negligence?is?not?excluded?under?such?a?policy,?it?is?a?covered?peril.?As?we?stated,?third?party?negligence?under?a?homeowner’s?policy?is?a?”risk?of?physical?loss”?under?the?policy.?(Ibid.)
[2b]?Moreover,?the?third?party?negligence?that?occurred?here?could?not?be?considered?a?remote?cause?of?the?loss?under?either?Garvey,?supra,?48?Cal.3d?395,?or?Sabella,?supra,?59?Cal.2d?at?pages?31-?32.?The?expert?testimony?overwhelmingly?supported?the?jury’s?determination?that?the?predominating?cause?of?the?loss?at?Big?Rock?Mesa?was?third?party?negligence.?By?developing?the?hillside?with?septic?tanks?instead?of?sewers?and?failing?to?properly?dewater?the?hillside,?it?was?inevitable?the?ancient?landslide?would?be?reactivated,?causing?damage?to?a?substantial?number?of?properties?on?the?mesa.In?addition,?the?fact?that?the?jury?was?instructed?under?Sabella’s?literal?”moving?cause”?language?rather?than?under?Garvey’s?broader?efficient?proximate?cause?language?(Garvey,?supra,?48?Cal.3d?at?pp.?403-404)?is?of?no?consequence.?Based?on?the?testimony,?it?is?not?reasonably?probable?a?different?result?would?have?been?reached?under?Garvey’s?definition?of?efficient?[54?Cal.3d?1133]?proximate?cause.?(Ibid.)?Accordingly,?the?Sabella,?supra,?59?Cal.2d?at?page?31,?instruction?did?not?prejudice?State?Farm.
The?Court?of?Appeal?and?State?Farm?also?rely?on?Finn?v.?Continental?Ins.?Co.?(1990)?218?Cal.App.3d?69,?71?[267?Cal.Rptr.?22],?to?support?the?argument?that?coverage?does?not?exist?in?this?case.?The?Finn?court?upheld?summary?judgment?for?the?insurer?after?determining?that?property?loss?attributed?to?leaking?water?caused?by?a?broken?sewer?pipe?was?an?excluded?risk?under?the?homeowner’s?policy?provision?excluding?losses?caused?by?”Continuous?or?Repeated?Seepage?or?Leakage.”?(Ibid.)?The?insured’s?claim,?that?the?break?in?the?pipe?(a?nonexcluded?cause)?rather?than?the?leakage?from?the?pipe?was?the?cause?of?the?loss,?was?rejected?by?the?court?on?the?ground?that?”Leakage?or?seepage?cannot?occur?without?a?rupture?or?incomplete?joining?of?the?pipes.”?(Id.?at?p.?72.)
Thus,?whereas?the?Finn?court?made?a?coverage?determination?based?on?one?cause?of?a?loss,?the?present?case?involves?several?levels?of?causation-an?unstable?hillside,?third?party?negligence,?earth?movement,?and?a?rise?in?the?groundwater?level.?This?is?not,?as?the?insurer?claims,?a?case?in?which?the?”negligence?cannot?be?separated?from?the?earth?movement,”?thus?leaving?only?one?cause?of?the?loss.?Although?the?causes?may?be?distinct?in?origin,?they?were?dependent?causes?in?the?sense?that,?but?for?the?negligence?in?building?the?structures?on?an?ancient?landslide?site?without?the?proper?sewer?system?or?stabilization?of?the?mesa,?the?landslides?might?not?have?occurred?or?damaged?the?property?to?the?extent?it?was?damaged.?Unlike?Finn,?supra,?218?Cal.App.3d?69,?this?case?presents?the?classic?Garvey?situation,?in?which?the?efficient?proximate?cause?must?be?determined?from?a?combination?of?covered?and?specifically?excluded?risks.?(Garvey,?supra,?48?Cal.3d?at?pp.?402-404.)
[4]?In?addition,?the?fact?that?the?earth?movement?may?have?resulted?from?rising?groundwater?levels?caused?by?the?development?on?the?mesa?does?not?preclude?coverage?in?this?case.?As?insureds?observe,?the?policy’s?groundwater?exclusion?applies?to?water?damage?caused?by?”natural?water?below?the?surface?of?the?ground”?and?not?to?the?artificially?high?level?of?groundwater?that?followed?the?housing?development.?Accordingly,?we?find?the?natural?water?exclusion?does?not?preclude?coverage?here. [2c]?We?conclude?the?Court?of?Appeal?erred?in?determining,?as?a?matter?of?law,?the?damage?suffered?by?insureds?was?not?covered?by?their?homeowner’s?policy.?Instead,?we?hold?the?jury?properly?found?on?these?facts?that?third?party?negligence?was?the?efficient?proximate?cause?of?insureds’?property?loss,?and?was?covered?under?their?policy?with?State?Farm.?[54?Cal.3d?1134]?B.?Third?Party?Negligence?Under?an?All-risks?Homeowner’s?Insurance?PolicyAlthough?we?determined?in?Garvey?that?third?party?negligence?is?a?covered?risk?unless?specifically?excluded?by?the?standard?homeowner’s?policy,?we?suggested?there?might?be?a?narrow?category?of?third?party?negligence?cases?in?which?coverage?was?not?available.?As?an?example,?we?indicated?that?if?a?structure?was?constructed?on?an?insured’s?property?solely?to?protect?the?insured’s?home?against?the?operation?of?a?specifically?excluded?risk?and?because?of?negligent?construction?the?structure?subsequently?failed?to?serve?its?purpose?and?the?home?was?damaged?by?the?excluded?risk,?the?damage?to?the?house?arguably?should?not?be?covered.?(Garvey,?supra,?48?Cal.3d?at?pp.?408-409,?fn.?7.)
[5]?State?Farm?contends?the?Court?of?Appeal?correctly?found?that?even?if?the?”acts?and?failings”?of?the?state,?County,?and?developer?amounted?to?negligence,?such?acts?could?never?be?the?efficient?proximate?or?predominant?cause?of?the?landslide?because?they?did?not?involve?”perils?distinct?from?excluded?risks.”?In?other?words,?State?Farm?asserts?the?third?party?negligence?involved?here?is?the?type?of?negligence?that?Garvey,?supra,?48?Cal.3d?at?pages?408-409,?footnote?7,?meant?to?exclude.?State?Farm?claims,?”Each?alleged?act?of?negligence?identified?by?[insureds]?…,?was?negligence?only?because?it?exposed?[insureds’]?property?to?earth?movement,?an?excluded?peril.?…?There?would?have?been?no?negligence?absent?the?risk?of?earth?movement.?Therefore,?the?negligence?cannot?be?separated?from?the?earth?movement.”The?negligence?that?occurred?in?this?case?was?the?undertaking?of?activity?that?exposed?the?insured?property?to?greater?danger?of?landslides?and?earth?movement?without?taking?counter?measures?to?eliminate?the?increased?risk?of?damage.?As?insureds?observe,?footnote?7?in?Garvey?does?not?apply?to?these?facts.?The?negligent?conduct?outlined?above,?causing?the?landslide?and?resulting?damage?to?insureds’?home,?was?not?designed?to?and?did?not?fail?to?prevent?the?landslide;?it?was,?in?fact,?the?predominating?factor?precipitating?the?slide.?It?is?clear?that?the?housing?tract?at?Big?Rock?Mesa?was?not?created?for?the?purpose?of?preventing?earth?movement;?it?was?created?as?a?profit-making?development.?Likewise,?there?is?no?indication?the?County?approved?the?development?in?order?to?prevent?earth?movement.?The?septic?systems?were?installed?to?dispose?of?household?wastewater,?not?to?prevent?future?landslides.?Although?the?jury?reasonably?found?that?these?acts?amounted?to?third?party?negligence,?none?was?completed?”for?the?sole?purpose?of?protecting?against?the?operation?of?a?specifically?excluded?risk?under?the?homeowner’s?policy?….”?(Garvey,?supra,?48?Cal.3d?at?p.?408,?fn.?7.)?[54?Cal.3d?1135]
Indeed,?State?Farm’s?argument?would?essentially?render?third?party?negligence?coverage?illusory.?Our?observation?in?Garvey,?supra,?at?pages?408-409,?footnote?7,?simply?indicated?that?an?insured?cannot?automatically?transform?an?uncovered?loss?into?a?covered?one?by?claiming?a?negligent?construction?job?existed?in?the?chain?of?causation.
This?principle?is?illustrated?in?Davis,?supra,?223?Cal.App.3d?1322,?1329-1330,?in?which?the?Court?of?Appeal?found?that?coverage?existed?under?an?all-risk?homeowner’s?policy?for?property?loss?caused?by?the?excluded?risk?of?settlement?that,?in?turn,?was?caused?by?a?contractor’s?failure?to?properly?prepare?the?soil?on?which?the?home?was?constructed.?The?contractor?also?failed?adequately?to?reinforce?the?dwelling’s?foundation.?The?insurer?contended?the?contractor?negligence?was?the?type?of?negligence?Garvey?suggested?would?not?be?covered.?In?rejecting?the?insurer’s?argument,?the?Davis?court?noted,?”There?are?a?number?of?problems?with?this?argument.?…?The?improvements?here?were?not?merely?anti-earth?movement?devices;?they?were:?(1)?grading?and?(2)?a?foundation.?When?seen?in?this?light,?it?becomes?clear?neither?improvement?was?the?type?undertaken?solely?to?prevent?earth?movement;?grading?is?performed?for?a?variety?of?reasons?including?providing?an?area?on?which?it?is?cheaper?and?quicker?to?build?and?which?may?provide?a?lot?more?desirable?to?the?final?buyer[;]?a?foundation?also?provides?support?for?the?structure.”?(Id.?at?p.?1329;?see?also?Winans,?supra,?743?F.Supp.?733,?736.)
As?the?Davis?court?observed,?footnote?7?in?Garvey,?supra,?was?never?intended?to?exclude?coverage?for?negligence?when?the?record?establishes?the?negligently?constructed?improvements?were?the?type?undertaken?for?reasons?other?than?prevention?of?an?excluded?occurrence.?(Davis,?supra,?223?Cal.App.3d?at?p.?1329.)?Here,?there?was?ample?evidence?that?the?third?party?negligence?leading?to?the?landslide?was?negligence?in?planning,?approving,?and?building?the?Big?Rock?Mesa?subdivision?and?not?negligence?in?acting?to?prevent?landslides?resulting?from?natural?causes.?We?therefore?conclude?that?our?observation?regarding?types?of?third?party?negligence?in?Garvey,?supra,?48?Cal.3d?at?pages?408-409,?footnote?7,?did?not?preclude?liability?based?on?the?jury?finding?that?third?party?negligence?was?the?efficient?proximate?cause?of?the?insureds’?property?loss.
- Conclusion
The?decision?of?the?Court?of?Appeal?is?reversed.?Because?it?directed?judgment?for?State?Farm?on?the?coverage?issue,?the?Court?of?Appeal?declined?to?address?the?remaining?issues?raised?by?the?parties,?involving?the?jury’s?finding?of?bad?faith,?the?issue?whether?State?Farm?owes?a?contractual?obligation?to?pay?for?stabilization?of?the?entire?mesa,?jury?instructions,?and?[54?Cal.3d?1136]?evidentiary?rulings.?We?remand?the?case,?therefore,?to?the?Court?of?Appeal?for?a?determination?of?these?issues?in?proceedings?consistent?with?this?opinion.fn.?1?Mosk,?J.,?Panelli,?J.,?Kennard,?J.,?Arabian,?J.,?Baxter,?J.,?and?George,?J.,?concurred.
FN?1.?Because?we?remand?the?case?to?the?Court?of?Appeal?for?consideration?of?the?remaining?issues,?including?whether?State?Farm?is?responsible?for?contributing?to?the?stabilization?of?the?entire?mesa,?we?decline?insureds’?request?to?take?judicial?notice?of?the?Big?Rock?Mesa?Integrated?Financing?District?No.?2?Assessment?Role?that?outlines?insureds’?assessment?costs?for?stabilization?of?Big?Rock?Mesa.?(See?Evid.?Code,????452,?459.)
[End?of?Volume?54?Cal.3d]