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California Appellate Court Holds "Minimal Causal Connection" Satisfies Causation Requirement in All Risk Policies

On May 26, 2020, a California Court of Appeals (4th District) issued its decision in Mosley et al. v. Pacific Specialty Ins. Co.  The case arose in the context of a marijuana-growing tenant who rerouted a home’s electrical system and caused an electrical fire.  The issue was whether the homeowner’s policy covered the loss.  The trial court granted the insurer’s motion for summary judgment and, in a divided decision, the Court of Appeals reversed in part.

The policy excluded losses “resulting from any manufacturing, production or operation, engaged in … the growing of plants.”  The parties agreed that the fire resulted from the rewiring of the electrical system, but disagreed on “whether that means the damage” “result[ed] from” “the growing of plants.”  The Court held that “resulting from” “broadly links a factual situation with the event creating liability, and connotes only a minimal causal connection or incidental relationship.”  In doing so, it equated the terms “results from” and “arising from.”  Concluding that a “common sense” approach was to be used, it found a “minimal causal connection” to be present.  This expansive standard could be beneficial to policyholders in arguing the causal connection between COVID-19 and ensuing business interruption losses; specifically, that the pandemic, a covered event, is the underlying and proximate cause of the insureds’ physical loss and/or damage and the insured’s resulting business interruption loss, and that intervening events, whether they be orders of civil authority, prevention of ingress/egress or otherwise, would not sever the chain of causation.

While the loss came within the exclusion, the Court moved to the policyholder’s next argument: whether the policy was void because it provided less coverage than that mandated by Insurance Code sec. 2070.  Specifically, 2070 requires that fire insurance policies in California be at least as broad and favorable to the insured as that provided in sec. 2071.  This provision states, in salient part, that an “insurer shall not be liable for loss occurring … while the hazard is increased by any means within the control or knowledge of the insured.”  The insurer did not maintain that the homeowner had the requisite knowledge, instead arguing that, as the property owner, it was deemed to “control” the property, a proposition with which the trial court agreed.  While California courts have held property owners strictly liable for claims arising from the site, strict liability concepts would not resolve “control” for purposes of insurance coverage, a condition which required actual knowledge.  There being no California law construing this standard form language, the court looked to decisions from elsewhere, decisions which stood “for the proposition that an insured increases a ‘hazard within its control’ only if the insured is aware of the hazard or reasonably could have discovered it through exercising ordinary care or diligence.”  Holding the insured strictly liable for the insured’s conduct would be a material deviation from 2071 and unenforceable.

The dissent takes exception to, among other things, the part of the majority decision which it believes conflates “control” and “knowledge” and ignores the disjunctive.  But rather than this being a conjunctive/disjunctive issue, as the dissent posits, the majority instead turns on what “control” means.

Copyright © 2020, Hunton Andrews Kurth LLP. All Rights Reserved.National Law Review, Volume X, Number 168

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About this Author

Scott DeVries Insurance Lawyer Hunton Andrews Kurth Law Firm
Special Counsel

An experienced trial lawyer, Scott routinely represents clients throughout the country facing insurance recovery issues, as well as in class and mass torts, product liability and complex civil litigation at both the trial and appellate levels.

Scott has more than 30 years of experience in high-value complex disputes for companies faced with major business litigation involving contracts, insurance rights and recovery, environmental claims and toxic torts/class actions. He has a nationwide practice, frequently appearing in court at both the trial and appellate levels, trying some of...

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Michael S. Levine Insurance Lawyer Hunton Andrews Kurth
Partner

Mike has more than 20 years of experience litigating insurance disputes and advising clients on insurance coverage matters.

Mike Levine is a partner in the firm’s Washington, DC office and a member of the firm’s Insurance Recovery team. Mike’s policyholder representation focuses on:

  • Property damage and business interruption claims, including COVID-19 losses
  • Event cancellation insurance counseling
  • Representations and warranties coverage
  • Commercial, professional, corporate and employment liabilities under CGL, pollution, E&O, D&O and EPLI insurance policies

Mike has spent his entire career advising clients about insurance and handling insurance coverage disputes. As a young lawyer, Mike represented the insurance industry in some of the highest-stakes matters, including the property, liability and appraisal proceedings arising from the Sept. 11 terrorist attack on the World Trade Center. Mike has devoted the latter half of his career to helping policyholders obtain the insurance recoveries they deserve, where Mike leverages his substantial insurance industry experience to maximize his clients’ insurance recoveries.

In recent years, Mike has recovered hundreds of millions of dollars of insurance proceeds for clients under general liability, property, directors and officers, cyber, errors and omissions, employment, environmental, and representations and warranties insurance coverages.

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