Findlay v. United Pacific Insurance , 129 Wash. 2d 368 ( 1996 )

Guy, J. —

Facts

This case involves a dispute regarding coverage under a homeowners insurance policy. The policyholders, Mary and Duncan Findlay, own a summer cabin which is at the base of a steep slope on a beach in Snohomish County. In early 1991, the slope behind the cabin failed, sliding into the rear of the cabin and causing structural damage. The landslide was caused by rain and wind. The parties agree that heavy rainstorms provided the initial source of water penetration into the steep slope. Then high winds, generated by severe storms, caused large tree roots to loosen the soils on the slope. Subsequent rains penetrated the loose soils and the landslide occurred.

The Findlays had an all-risk homeowners insurance policy with United Pacific Insurance Company. In the "Perils Insured Against” section, the policy states:

We insure for risk of direct physical loss to the property described in Coverages A, B and C EXCEPT:

Coverage A, which is now at issue, provides insurance for the dwelling. The "Exclusions” section of the policy states in relevant part:

WE DO NOT COVER LOSS RESULTING DIRECTLY OR INDIRECTLY FROM:

B. EARTH MOVEMENT TO PROPERTY DESCRIBED IN COVERAGES A . . . . DIRECT LOSS CAUSED BY, RESULTING FROM, CONTRIBUTED TO OR AGGRAVATED BY:

1. EARTHQUAKE, LANDSLIDE, MUDFLOW, EARTH SINKING, RISING OR SHIFTING!.]

WE DO NOT INSURE FOR LOSS TO PROPERTY DESCRIBED IN COVERAGES A . . . CAUSED BY ANY OF THE FOLLOWING. HOWEVER, ANY ENSUING LOSS NOT EXCLUDED OR EXCEPTED IN THIS POLICY IS COVERED.

1. WEATHER CONDITIONS, HOWEVER, THIS EXCLUSION ONLY APPLIES IF WEATHER CONDITIONS CONTRIBUTE IN ANY WAY WITH ANY EVENT EXCLUDED IN ITEMS A. THROUGH H. ABOVE TO PRODUCE THE LOSS!.]

The Findlays submitted a claim for the damage to the cabin to United Pacific. The insurer denied coverage on the basis that the weather conditions of rain and wind triggered earth movement to cause the damage and that such a loss was not covered due to the "earth movement” and "weather conditions” exclusions. The Findlays filed an action for a declaratory judgment, arguing that these exclusions violated the "efficient proximate cause” rule and should not be enforced.

The parties agreed there was no issue of fact and filed cross motions for summary judgment. The parties agreed that the "efficient proximate cause” of the loss was the rain and wind. The trial court granted the insurer’s motion and dismissed the Findlays’ action.¹

Division One of the Court of Appeals affirmed the trial court’s summary judgment. Findlay v. United Pac. Ins. Co., 78 Wn. App. 17, 895 P.2d 32, review granted, 127 Wn.2d 1021 (1995). We accepted review and now affirm the Court of Appeals’ decision.

Issue

Does the efficient proximate cause rule apply to mandate coverage when an insurance policy excludes coverage for the peril which was the proximate cause of the loss?

Analysis

In 1983, this Court adopted the "efficient proximate cause” rule. Graham v. Public Employees Mut. Ins. Co., 98 Wn.2d 533, 538, 656 P.2d 1077 (1983). This rule addresses the issue of whether an all-risk insurance policy covers a loss caused by two or more perils when one of the perils is excluded and the other peril is covered. Graham explained that:

Where a peril specifically insured against sets other causes in motion which, in an unbroken sequence and connection between the act and final loss, produce the result for which recovery is sought, the insured peril is regarded as the "proximate cause” of the entire loss.

■ It is the efficient or predominant cause which sets into motion the chain of events producing the loss which is regarded as the proximate cause, not necessarily the last act in a chain of events.

Graham, 98 Wn.2d at 538 (citations omitted). See also 5 John A. Appleman & Jean Appleman, Insurance Law and Practice § 3083, at 309 (1970); 18 Ronald A. Anderson, Couch on Insurance § 74:709, at 1019 (2d rev. ed. 1983). The identification of a certain event as the efficient proximate cause of a loss is usually a question of fact. Graham, 98 Wn.2d at 539. However, in the present case, the Findlays and United Pacific agree that the efficient proximate cause of the loss was the weather conditions of rain and wind.

In the cases since Graham, we have consistently adhered to the proximate cause rule. Villella v. Public Employees Mut. Ins. Co., 106 Wn.2d 806, 815, 725 P.2d 957 (1986); Safeco Ins. Co. v. Hirschmann, 112 Wn.2d 621, 625, 773 P.2d 413 (1989); McDonald v. State Farm Fire & Casualty Co., 119 Wn.2d 724, 731, 837 P.2d 1000 (1992); Kish v. Insurance Co. of N. Am., 125 Wn.2d 164, 169, 883 P.2d 308 (1994).

The policyholders here rely on the Villella and Hirschmann cases for the proposition that the efficient proximate cause rule applies to mandate coverage under the policy involved in this case. We disagree. The holdings in those cases are consistent with the trial court’s and Court of Appeals’ denial of coverage under the facts and policy language of the present case.

In Villella, the homeowners sought coverage for damage to the foundation of their home allegedly caused by the builder’s failure to install a proper drainage system. They claimed the damage resulted from the builder’s negligence (a covered peril), and the insurer claimed the damage resulted from the earth movement (an excluded peril). The homeowner argued the builder’s negligence set in motion a sequence of events (including earth movement) culminating in the damage to the house. The policy excluded losses resulting directly or indirectly from earth movement, which included loss " 'caused by, resulting from, contributed to or aggravated by . . . earth sinking, rising or shifting.’ ” Villella, 106 Wn.2d at 809.

We adhered to the Graham proximate cause rule quoted above and explained:

Stated in another fashion, where an insured risk itself sets into operation a chain of causation in which the last step may have been an excepted risk, the excepted risk will not defeat recovery.

Villella, 106 Wn.2d at 815. We held that the policy would cover the loss if the builder’s negligence was the efficient proximate cause. Although earth movement was one cause in the chain of causation, the alleged efficient proximate cause of the loss was the purported negligence of the builder. We therefore remanded for the factual determination of whether the negligence was the efficient proximate cause of the loss. If so, the earth movement exclusionary clause would not exclude coverage. Application of the proximate cause rule to allow coverage was appropriate because the builder’s negligence was a peril that was covered by the insurance policy. The policy in Villella did preclude coverage for earth movement, but it did not exclude losses caused by both earth movement and another covered peril. It was not clear from the policy that the loss which occurred would not be covered. Absent extrinsic evidence showing intent, an ambiguous clause in an insurance policy will be strictly construed against the insurer. The rule strictly construing ambiguities in favor of the insured applies with added force to exclusionary clauses which seek to limit policy coverage. E.g., American Star Ins. Co. v. Grice, 121 Wn.2d 869, 874-75, 854 P.2d 622 (1993). In Villella, a straightforward application of the efficient proximate cause rule provided coverage because, under the policy, the alleged proximate cause was an insured risk. This is different from the present case where the proximate cause of the loss (the weather) was a specific named exclusion in the insurance policy.

The Hirschmann case, also relied upon by the Findlays, had facts very similar to this case with regard to the loss, but the insurance policy was significantly different from the United Pacific policy in the present case. In the Hirschmann case, heavy rains saturated the soil, causing a landslide which pushed a house off its foundation. The homeowners insurance policy covered loss caused by rain, which was the efficient proximate cause of the loss. However, the policy excluded coverage for damage due to a number of causes (including earth movement) "whether occurring alone or in any sequence with a covered peril.” The insurer contended that this broad exclusionary language excluded coverage for any loss resulting from a causal chain which included any excluded peril, regardless of how insignificant the contribution from the excluded peril may have been. We held that an insurer could not, by drafting a variation in exclusionary clause language, deny coverage when a covered peril sets in motion a causal chain the last link of which is an excluded peril. Hirschmann, 112 Wn.2d at 626-27. It was impossible to tell from reading the policy in that case what losses were being covered and what losses were being excluded.

Because the disputed language in the Hirschmann policy ("whether occurring alone or in any sequence with a covered peril”) was in an introductory section, it applied to all exclusions and, if we had accepted the insurer’s interpretation, any contribution by any excluded peril, however insignificant, would have always eliminated coverage for a loss. This would have been the result even in cases where the efficient proximate cause of the loss was a covered peril.

In this case, the Findlays argue that the Hirschmann court’s conclusion that the policy language in that case was unenforceable should be extended to the policy language at issue here. The policy language in the United Pacific policy at issue is significantly different from the language of the policy at issue in Hirschmann. This is not a case where the efficient proximate cause rule is being circumvented by disallowing coverage any time an excluded event occurs in the chain of causation, even when the triggering cause of the loss is a covered risk. In this case, the proximate cause of the loss was a named, excluded peril. Weather conditions are specifically ex-eluded whenever they combine with earth movement to cause a loss. The policy is unambiguous as to what was covered and what was excluded from coverage.

We recognized in Hirschmann that a policy’s exclusionary clause may operate to deny coverage for losses resulting from causal chains in which excluded perils are the only proximate causes, or chains in which an excluded peril is the efficient proximate cause. Hirschmann, 112 Wn.2d at 631. That is the case here—an excluded peril was the efficient proximate cause of the loss. What we were not allowing in Hirschmann was the use of broad policy language which eliminates the relevance of the efficient proximate cause rule under all possible circumstances. We did not forbid the use of clear policy language to exclude a specifically named peril from coverage.

By its own terms, the efficient proximate cause rule operates when an insured risk or covered peril sets into motion a chain of causation which leads to a loss. McDonald, 119 Wn.2d at 732. In McDonald, we declined the request to discard the efficient proximate cause rule and reaffirmed our commitment to the rule and the decisions applying it. 119 Wn.2d at 732. However, we refused to apply the proximate cause rule to allow for coverage when the efficient proximate cause of the damage was the faulty construction of the filled area adjacent to the foundation of a home (which caused earth movement) because earth movement caused by faulty construction was an excluded risk in the policy. McDonald, 119 Wn.2d at 733-34. We explained that in a chain of causation case, the efficient proximate cause rule is properly applied after (1) a determination of which single act or event is the efficient proximate cause of the loss, and (2) a determination that the efficient proximate cause of the loss is a covered peril. McDonald, 119 Wn.2d at 732. In the present case, the parties agree the efficient proximate cause of the loss was weather conditions, specifically rain and wind. This cause is not a covered loss because the policy unambiguously states that it does not insure for loss caused by weather conditions if the weather conditions contribute to earth movement. In McDonald, 119 Wn.2d at 735, we held that only if the peril which is the efficient proximate cause of the loss is a covered peril does the efficient proximate cause rule come into play. There is no coverage in the present case when the precipitating event is itself excluded from coverage by the clear terms of the insurance policy.

We recognize the importance of both the language and the structure of an all-risk insurance policy. In McDonald, 119 Wn.2d at 734, we explained that because the structure of an all-risk homeowners insurance policy consists of a grant of coverage counterbalanced by coverage exclusions, an interpretation of provisions contained in such a policy must acknowledge this structure, which is an important objective source of meaning and intent. In the present case, the clause concerning losses caused by weather conditions is contained in the exclusions section of the policy. The language and the structure of the policy communicate an intent to exclude coverage when weather combines with earth movement to cause a loss.

This Court’s recent opinion in Kish v. Insurance Co. of N. Am., 125 Wn.2d 164, supports the trial court’s and the Court of Appeals’ conclusions in this case. In Kish, this Court emphasized that "the purpose of the efficient proximate cause rule is to provide a 'workable rule of coverage that provides a fair result within the reasonable expectations of both the insured and the insurer.’ ” Kish, 125 Wn.2d at 172 (quoting Garvey v. State Farm Fire & Casualty Co., 48 Cal. 3d 395, 404, 770 P.2d 704, 257 Cal. Rptr. 292 (1989)). Therefore, if the contract is clear that a specific named peril (such as a landslide caused by rain) is excluded from coverage, then the rule simply acts to give effect to the articulated expectations of the parties.

In Garvey, 48 Cal. 3d at 408, cited with approval by this Court in Kish, the California Supreme Court explained that

the reasonable expectations of the insurer and the insured in the first-party property loss portion of a homeowner’s policy—as manifested in the distribution of risks, the proportionate premiums charged and the coverage for all risks except those specifically excluded—cannot reasonably include an expectation of coverage in property loss cases in which the efficient proximate cause of the loss is an activity expressly excluded under the policy.

For the first time on appeal, the insurer argued that rain and mudslide constitute a single peril under the policy. We disagree that a landslide and rain are the "same peril.” Although we found in Kish that rain-induced flood was the same peril as flood, we did not hold that all causes in a sequential chain of events are the same peril. Such a holding would abrogate the efficient proximate cause rule in all cases. In Kish, 125 Wn.2d at 170, we recognized that the characterization of perils is a question of contract and looked to the insurance contract to determine if two perils are separate under the language of the policy. In the Findlays’ policy, earth movement is a separate exclusion from the weather conditions exclusion. Coverage is denied in this case because the efficient proximate cause of the loss was an excluded peril in the policy, not because winds and rain are the same peril as a landslide.

The contention that exclusions from coverage in all-risk insurance policies generally violate public policy is not supported by Washington law. The "reasonable expectation” doctrine has never been adopted in Washington, and there is no reasonable expectation that no exemptions to coverage exist. State Farm Gen. Ins. Co. v. Emerson, 102 Wn.2d 477, 485, 687 P.2d 1139 (1984). Rather, insurance policies are to be construed as contracts. E.g., Emerson, 102 Wn.2d at 480. In an all-risk homeowners insurance policy, any peril that is not specifically excluded in the policy is an insured peril. Villella, 106 Wn.2d at 816. However, all-risk homeowners insurance policies may contain exclusions, and the agreement is to be interpreted in a way that gives effect to each provision of the insurance contract. McDonald, 119 Wn.2d at 734.

We have repeatedly held that an insurer, as a private contractor, is ordinarily permitted to limit its liability unless to do so would be inconsistent with public policy. When such public policy exists, it will ordinarily be found in a regulatory statute. American Home Assurance Co. v. Cohen, 124 Wn.2d 865, 873-74, 881 P.2d 1001 (1994) (generally an insurance contract does not violate public policy where it is not prohibited by statute, condemned by judicial decision, or contrary to the public morals); Smith v. Continental Casualty Co., 128 Wn.2d 73, 83, 904 P.2d 749 (1995); Boeing Co. v. Aetna Casualty & Sur. Co., 113 Wn.2d 869, 876 n.1, 784 P.2d 507 (1990); Eurick v. Pemco Ins. Co., 108 Wn.2d 338, 343, 738 P.2d 251 (1987); Britton v. Safeco Ins. Co., 104 Wn.2d 518, 528-29, 707 P.2d 125 (1985); Mutual of Enumclaw Ins. Co. v. Wiscomb, 95 Wn.2d 373, 622 P.2d 1234 (1980), aff’d on reh’g, 97 Wn.2d 203, 210, 643 P.2d 441 (1982). There is no statute that requires an insurer to cover losses for earth movement in a homeowners policy. The policy at issue in this case does not violate any articulated public policy.

The parties agree that it violates no public policy for an insurer to write an insurance policy to exclude coverage for loss caused by adverse weather. In this case, the policy excludes loss caused by weather conditions, but then adds back or restores coverage for losses caused by weather which does not occur in concert with one of the policy’s other stated exclusions. This provides greater protection for a policyholder than would be enjoyed under an absolute weather exclusion. If an exclusion for weather conditions does not violate any public policy, then an exclusion for only some instances of weather loss cannot, violate public policy. Our goal in construing an insurance policy is to give effect to the apparent clear intention of the parties. Rones v. Safeco Ins. Co., 119 Wn.2d 650, 654, 835 P.2d 1036 (1992). Here, the clear intent of the parties gleaned from the insurance contract is that landslides are not a covered peril.

Conclusion

What this court will not enforce is a contract of insurance wherein coverage is excluded simply because one cause of a loss, in a chain of causation, is an excluded peril. Villella, 106 Wn.2d 806; Hirschmann, 112 Wn.2d 621. If the efficient proximate cause, the cause that triggers other causes to result in a loss, is a specifically named, unambiguous excluded peril in the policy, we will not mandate coverage. We will not, under the guise of public policy, rewrite a clear contract between the parties. The efficient proximate cause rule should be applied to enforce the reasonable expectations of the parties based on the language of the insurance contract and not to create a new contract for the parties.

The Findlays seek an award of attorney fees since an insured who is compelled to assume the burden of legal action to obtain the benefit of its insurance contract is entitled to attorney fees. McGreevy v. Oregon Mut. Ins. Co., 128 Wn.2d 26, 28, 904 P.2d 731 (1995); Olympic S.S. Co. v. Centennial Ins. Co., 117 Wn.2d 37, 54, 811 P.2d 673 (1991). However, since the Findlays have not prevailed, they are not entitled to attorney fees. See McGreevy, 128 Wn.2d at 33; Olympic S.S., 117 Wn.2d at 54.

We affirm the Court of Appeals’ decision which affirmed the trial court’s grant of summary judgment.

Durham, C.J., and Dolliver, Smith, Madsen, Alexander, and Sanders, JJ., concur.

1 Uhe coverage due under coverage C, for loss to personal property, was not subject to the summary judgment motions and was apparently resolved by agreement of the parties.