The Ninth Circuit held that the efficient proximate cause doctrine is not limited to all-risk policies. Olin Corp. v. Continental Cas. Co., 2016 U.S. App. LEXIS 4905 (9th Cir. March 17, 2016).
Olin operated a plant that produced industrial chemicals. Continental issued a policy covering the plant's boilers and machinery. In late 2008, the machinery was damaged. Continental denied coverage for damage to Olin's diaphragm cells, which were tanks containing metal cathodes covered by asbestos diaphragms. Continental argued that the damage to the cells was not covered because it was not caused by an "accident." The jury returned a verdict in favor of Olin.
Continental appealed. It first argued that the district court erred in applying the efficient proximate cause doctrine. Under the doctrine, the peril that set in motion the chain of events leading to the loss or the "predominating cause" was deemed the efficient proximate cause or legal cause of the loss. The Ninth Circuit disagreed that the doctrine only applied to all-risk policies.
Next, Continental argued that because its policy covered only "direct damage" to covered property caused by a covered cause of loss, the policy language precluded the use of the efficient proximate cause doctrine. Under the policy language, coverage existed only when a covered peril was the last link in the causal chain that terminated in the damage, and not when a covered peril only sets in motion the chain of events leading to the loss. No cases were cited by Continental to support its argument, however. The court found that the use of "direct damage" in the policy was consistent with the efficient proximate cause doctrine.
Continental next contended that the district court erred in determining that the word "corrosion" in the policy was ambiguous as applied to the facts of this case. The issue was whether the term "corrosion" included the penetration of magnetite dendrites into asbestos diaphragms that were baked onto metal cathodes inside the cells. The Ninth Circuit determined that the district court correctly determined that whether this process was "corrosion" was ambiguous. The policy did not define "corrosion." Moreover, the asbestos diaphragms did not themselves corrode. Instead, the metal cathodes corroded, and byproducts of this corrosion penetrated the diaphragms, causing them damage. Because the word "corrosion" as applied to this case led to multiple reasonable interpretations, the district court correctly determined that the term was ambiguous.
The district court's judgment was affirmed.