The court considered whether a wildfire (covered risk) or moisture in the soils (excluded risk) was the cause of damage to the insureds' home. Encompass Ins. Co. v. Berger, 2014 U.S. Dist. LEXIS 142870 (C.D. Cal. Oct. 7, 2014).
In May 2009, the Jesusita Fire caused damage to the insureds' home and surrounding area. The west wall of the house was burned, causing damage to a bedroom. A shed, hot tub, wooden decks and some vegetation, including eucalyptus trees, were damaged.
The insureds submitted a claim to Encompass. Eventually, Encompass spent $400,000 repairing the property.
In April 2011, walls began to separate in the home, sheet rock buckled, tiles throughout the house were dislodging, and doors were not fitting in their frames. A geotechnical firm investigated and determined that the Jesusita Fire did not cause the new damage to the home. Instead, the damage was caused by the age and nature of the construction, shrinking and swelling of the highly expansive soils, changes in drainage, new utility trenches, etc.
Encompass denied coverage for the 2011 damage based on the reports. Encompass determined that the damage appeared to be predominantly caused by settling and expansion of the property and soils, and resulting cracking, which was excluded under the policy.
In September 2012, Encompass filed suit seeking a declaration that the damage was not covered under the policy. Encompass' expert at trial testified that the interior damage to the house was primarily the result of water in the main utility trench along the west side of the property and pooling in the expansive soils beneath the concrete slab of the residence, causing the soils to expand and exert pressure. Changes in vegetation and irrigation from the post-fire changes and repairs would not have caused the damage to the home. The insureds' expert, on the other hand, testified that changes in vegetation, irrigation, and soil constitution after the fire led to increased variability in soil moisture content, which was the primary cause of the damage to the home.
The court found that the fire was the efficient proximate cause of the damage to the home. There was no evidence that the property had previously experienced distress and damage as it did in 2011. This suggested that the significant changes to the property which occurred after the Jesusita Fire were the more important causes than the underlying problems with the foundation. The fire had resulted in the construction of the main utility trench that conducted water to the site of the damage. Because the fire was the efficient proximate cause of the damage and fire damage was not excluded under the policy, the damage was covered.
However, the insureds were not entitled to recover the cost of reconstructing the foundation. The Jesusita Fire did not cause the foundation to be inadequate. Therefore, the policy did not require Encompass to upgrade the foundation from the way it existed before the fire. It only required Encompass to insure against damage proximately caused by a covered peril. Consequently, the insureds were entitled to damages in the amount of $5,173.80 for repair of the utility trench. The insureds were also entitled to $26,208.50 for repairs to the existing damage within the house.
