Why Does "Causation" Matter For Property Damage Claims?

Under California law, there is no coverage under an insurance policy when the cause of damage is an excluded peril. But what happens when a loss to your property results from several “perils,” only one of which is covered under your policy and the other excluded? Insurance companies have denied coverage in these instances. California has attempted to address this issue and provides two standards for determining causation, and thus whether or not you have coverage.

The first standard is the efficient proximate causation doctrine. Under this standard, an insurer is liable for losses “of which a peril insured against was the proximate cause,” but it is not liable for losses caused by “remote causes.” (Cal. Ins. Code § 530). Essentially, it looks to the primary cause of the loss. If coverage for that peril is not provided under the policy, there will be no coverage for the loss. Unfortunately, this doctrine helps insurance companies enforce coverage exclusions where the excluded peril is the main cause of the loss, even where a covered peril may have contributed.

The second standard relates to “excepted perils.” An excepted peril is one which is specifically excluded by the contract. This standard provides that where an insurance contract specifically excepts some danger and there is a loss caused by that danger, the loss is excepted from coverage even if another immediate cause is some danger that was not excepted. In other words, an insurer will not be liable for losses caused, even in part, by dangers that were specifically excluded from coverage in the policy contract. (Cal. Ins. Code § 532). Furthermore, if an excepted peril is involved in loss involving concurrent causes and the damage cannot be separated, then none of the loss is insured. If it can, then only the insured part of the damage is covered. 

For example, a homeowner chooses a fire policy that specially excepts losses from power outages. Then a fire occurs, following which there is a power outage, and her refrigerator shuts down and all the food therein spoils. The homeowner would expect the loss of food to be included in her claim paid by the fire policy. However, she would be sorely mistaken. Because the fire policy excepts losses from “power outage” perils and the proximate cause was the power outage (not the fire directly), she would not be able to recover for the amounts lost.

California courts recognize that these are vague standards. It is therefore extremely important to persuasively pinpoint the proper cause of each particular loss where multiple causes may plausibly be involved.