Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-12-17575/USCOURTS-ca9-12-17575-0/pdf.json

Parties Involved:
Metropolitan Property and Casualty Insurance Company
Appellee
Victor Nikolaev
Appellant
Magda Stankova
Appellant

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

MAGDA STANKOVA; VICTOR

NIKOLAEV,

Plaintiffs-Appellants,

v.

METROPOLITAN PROPERTY AND

CASUALTY INSURANCE COMPANY, a

foreign corporation,

Defendant-Appellee.

No. 12-17575

D.C. No.

3:12-cv-08016-

PGR

OPINION

Appeal from the United States District Court

for the District of Arizona

Paul G. Rosenblatt, Senior District Judge, Presiding

Argued and Submitted

April 15, 2015—San Francisco, California

Filed May 29, 2015

Before: Mary M. Schroeder and N. Randy Smith, Circuit

Judges and Sharon L. Gleason,* District Judge.

Per Curiam Opinion

* The Honorable Sharon L. Gleason, United States District Judge for the

District of Alaska, sitting by designation.

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2 STANKOVA V. METRO. PROP. & CAS. INS. CO.

SUMMARY**

Insurance Law

The panel reversed the district court’s summary judgment

in favor of an insurer, and held that under Arizona law there

was a triable issue as to whether a fire directly caused the

destruction of the insured’s home.

Approximately one month after a wildfire swept through

part of Northern Arizona, flooding and mudslides in the area

destroyed the plaintiffs’ house. Plaintiffs’ homeowners’

policy covered damage directly caused by fire, and excluded

damages caused by flooding or earth movement. 

The panel held that because the Arizona standard fire

policy was based on New York’s standard fire policy, the

panel could look to New York law and treatises for guidance

in order to ascertain what “direct” causation meant in the

context of a fire insurance policy. The panel concluded that

the damage at issue could have been directly and proximately

caused by the wildfire, and remanded for trial or further

proceedings.

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 3

COUNSEL

Randy L. Sassaman (argued) and Michael J. Raymond,

Raymond, Greer & Sassaman, P.C., Phoenix, Arizona, for

Plaintiffs-Appellants.

Christopher M. Hanlon (argued) and James A. Robles,

Carnahan, Perry, Hanlon, Hudson, PLC., Phoenix, Arizona

for Defendant-Appellee.

OPINION

PER CURIAM:

This fire insurance case arises under Arizona law and

involves issues of causation. In the summer of 2011, a

wildfire swept through a large swath of Northern Arizona,

burning acres of vegetation. Approximately one month after

the fire was put out, flooding and mudslides in the area

destroyed Plaintiffs’ house. Plaintiffs’ homeowner’s policy

covered damage directly caused by fire, and excluded

damages caused by flooding or earth movement. The district

court granted summary judgment for the insurer, concluding

that damage caused by mudslides a month after a fire could

not, as a matter of law, be “directly” caused by fire as

required under Arizona law. Arizona law, however, favors a

broader interpretation of direct causation. We therefore

reverse and remand for further proceedings to determine

whether the fire directly caused Plaintiffs’ losses.

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4 STANKOVA V. METRO. PROP. & CAS. INS. CO.

BACKGROUND

Plaintiffs-Appellants Magda Stankova and Victor

Nikolaev (“Stankova”) owned a home and detached garage in

Alpine, Arizona. When Stankova purchased the property in

1998, she alleges there were no disclosures or any evidence

that the house had ever been damaged by flood or mudslides,

nor was the home ever previously damaged by flood or

mudslides during the time that Stankova owned it. The home

and its garage were insured under a homeowner’s insurance

policy issued by Metropolitan Property and Casualty

Insurance Company (“Metropolitan”).

In 2011, there was a massive wildfire, the “Wallow Fire,”

in the area near the Stankova house. The fire began on May

29, 2011 and was not contained until July 8, 2011. The fire

itself consumed Stankova’s detached garage on June 13, but

did not reach the house. The wildfire also destroyed all the

vegetation on a nearby hillside. On August 6, 2011, a month

after the wildfire was put out, there was a mudslide on the

hillside. The mudslide and runoff water destroyed the

Stankova house.

Stankova had a homeowner’s policy with DefendantAppellee Metropolitan which covered direct loss caused by

fire but excluded coverage for loss caused by either water

damage or earth movement, including mudslides. The policy

provided coverage for “sudden and accidental direct physical

loss or damage” to Stankova’s property if the loss was caused

by the losses in “Section I - Broad Named Perils.” That

section included “Fire or Lightning” as a covered peril.

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 5

The policy also included certain exclusions, described in

“Section I – Losses We Do Not Cover.” That section read as

follows:

SECTION I - LOSSES WE DO NOT COVER

1. We do not insure under any Section I

coverage for any loss which would not have

happened in the absence of one or more of the

following excluded events. We do not insure

for such loss regardless of:

(a) the cause of the excluded event;

(b) other causes of the loss; or

(c) whether such causes acted at the same time

or in any other sequence with the excluded

event to produce or contribute to the loss.

These exclusions apply whether or not the

excluded event results in widespread damage

or affects a substantial area. The excluded

events are listed below.

. . . .

D. Water damage, meaning any loss caused

by, resulting from, contributed to or

aggravated by:

[flood, water backups from sewer of drains,

surface water flooding or leakage, etc.]

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6 STANKOVA V. METRO. PROP. & CAS. INS. CO.

This exclusion applies whether or not the

water damage is caused by or results from

human or animal forces or any act of nature.

However, we pay for direct loss that ensues

after water damage if caused by fire, theft, or

explosion, and then we pay for only the

ensuing loss.

E. Earth Movement, meaning any loss caused

by, resulting from, contributed to or

aggravated by events that include, but are not

limited to:

[earthquake, volcanic eruption, sinkhole,

mudslide, erosion, settling or contracting of

earth, etc.]

This exclusion applies whether or not the

earth movement is combined with water or

caused by or results from human or animal

forces or any act of nature.

However, we pay for direct loss that ensues

after earth movement if caused by fire,

explosion other than explosion of a volcano,

theft, or breakage of glass or safety glazing

material and then we pay for only the ensuing

loss.[1]

1 Stankova conceded at argument that the “exception” provisions of

subsections D and E were not applicable to the issues presented here.

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 7

Stankova sought coverage under the homeowner’s policy

first for the destruction of the garage and later for the

destruction of the home. Metropolitan agreed to cover the

loss of the garage but denied coverage for the loss of the

home. Metropolitan informed Stankova that it was denying

coverage because the damage was due to flood water and

earth movement, both of which were explicitly excluded from

coverage under the policy. Stankova contested this

determination, arguing that fire was the actual and proximate

cause of the loss. In its response letter, Metropolitan

reaffirmed its denial of coverage, stating that water and earth

movement, not fire, were the “obvious, immediate and

physical causes” of the damage. Stankova then decided to

bring suit.

Stankova initially filed her complaint in state superior

court. Metropolitan then removed the case to federal court. 

The parties conducted only initial discovery. Both parties

then filed cross-motions for summary judgment, each with

supporting statements of facts, most of which were not

controverted. After each party responded and replied to the

other’s motion, the district court granted Metropolitan’s

motion for summary judgment. Stankova now appeals.

“It is well settled that a federal court exercising diversity

jurisdiction must apply substantive state law.” Allstate Ins.

Co. v. Hughes, 358 F.3d 1089, 1094 (9th Cir. 2003) (quoting

Am. Triticale, Inc. v. Nytco Servs., Inc., 664 F.2d 1136, 1141

(9th Cir. 1981)). Accordingly, we apply Arizona substantive

law to this dispute.

The case the parties discuss that is factually closest to this

case is Howell v. State Farm Fire & Cas. Co., 218 Cal. App.

3d 1446 (1990). There, a wildfire occurred near the insured’s

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8 STANKOVA V. METRO. PROP. & CAS. INS. CO.

property in summer; when winter and heavy rains came, a

landslide occurred and damaged the property. The policy at

issue provided coverage for fire damage but not water or

earth movement damage. Id. at 1449–50. The insurer denied

coverage on that basis, and the insured successfully appealed,

with the court holding that the landslide likelywould not have

occurred if there had not been a fire, and that therefore the

fire was the “efficient proximate cause” of the loss. Id. at

1451.

By statute, California insurance policies are required to

provide coverage whenever a covered peril is the “proximate

cause” of the loss. Cal. Ins. Code § 530. Case law interprets

“proximate cause” more broadly as “efficient proximate

cause,” or the cause that “sets others in motion” and is “the

predominating or moving efficient cause.” Sabella v. Wisler,

377 P.2d 889, 895 (Cal. 1963). Relying on this case law, in

Howell, the appeals court reversed the trial court’s grant of

summary judgment, holding that a “reasonable juror could

find that the burning of the slope was the ‘predominating

cause’ or the one that set the others in motion.” 218 Cal.

App. 3d at 1460.

Arizona has not adopted the doctrine of “efficient

proximate cause” in deciding issues of causation in insurance

disputes. See Millar v. State Farm Fire & Cas. Co., 804 P.2d

822, 826 (Ariz. Ct. App. 1990) (“We have never adopted the

‘efficient proximate cause’ rule. In Arizona an insurer is

permitted to limit its liability unless to do so would be

inconsistent with public policy.”). However, the underlying

policy coverage issue in Millar was not related to direct loss

caused by fire damage. See id. at 823–24. Nevertheless, the

fact that Arizona has not adopted the efficient proximate

cause doctrine is a principal reason the district court granted

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 9

summary judgment for Metropolitan, so we must look closely

at Arizona law.

Arizona requires, by statute, that all fire insurance

policies conform to a standard policy, which is based on New

York’s standard fire policy of 1943. A.R.S. § 20-1503. If a

policy conflicts with the provisions in the standard policy, the

standard policy provisions govern. See Nangle v. Farmers

Ins. Co. of Arizona, 713 P.3d 1252, 1257 (Ariz. Ct. App.

2003). The standard fire policy states that an insurer will

provide coverage “against all direct loss by fire, lightning and

by removal from premises endangered by the perils insured

against in this policy.” N.Y. Ins. Law § 3404 (emphasis

omitted).

The key question under Arizona law is then whether the

mudslide that damaged Stankova’s house was “directly”

caused by fire. Stankova argues that the mudslide was

directly caused by the fire, and that therefore the damage to

her home is covered under the policy. Metropolitan argues

that Stankova’s insurance policy unambiguously excludes

water damage and earth movement and asserts that the fire

was not a direct cause of the damage to Stankova’s house.2

2 Metropolitan also suggests its policy can be interpreted to exclude

coverage for earth movement and water even if directly caused by fire. If

the policy were so interpreted, it would conflict with the provision of the

standard policy that requires coverage for all direct loss by fire. Arizona

law allows for exceptions to the fire policy if (1) the “loss by fire or other

perils insured against” is caused “directly or indirectly by terrorism,”

A.R.S. § 20-1503, or (2) “such provisions and stipulations are applicable

only to such additional coverage or to the additional peril or perils insured

against,” A.R.S. § 20-1507.

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10 STANKOVA V. METRO. PROP. & CAS. INS. CO.

Because the Arizona standard fire policy is based on New

York’s standard fire policy, we may look to New York law

and treatises for guidance in order to ascertain what “direct”

cause means in the context of a fire insurance policy. In

reference to fire insurance, a New York court has provided:

Loss by fire within the policy’s coverage is

not limited to fire damage; rather, all losses

are covered which are directly, proximately,

or immediately caused by a fire or

combustion. In other words, the damage for

which fire insurers are liable is not confined

to loss by actual burning and consuming, but

they are liable for all losses which are the

immediate consequences of fire or burning, or

for all losses of which fire is the proximate

cause. This follows from the fact that the fair

and reasonable interpretation of a policy of

insurance against loss by fire will include

within the obligation of the insurer every loss

which necessarily follows from the

occurrence of the fire, to the amount of the

actual injury to subject of the risk, whenever

that injury arises directly and immediately

from the peril, or necessarily from incidental

and surrounding circumstances, the operation

and influence of which could not be avoided.

Throgs Neck Bagels, Inc. v. GA Ins. Co. of New York,

671 N.Y.S.2d 66, 69 (App. Div. 1998) (quoting 10A Couch,

Insurance 2d § 42.30).

Both parties cite to a particular treatise on insurance law,

Insurance Law & Practice by John and Jean Appleman

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 11

(1970). The Appleman treatise has been cited in several

Arizona cases as being instructive on the meaning of terms in

insurance policies. The Arizona Court of Appeals cited to the

Appleman treatise in Liristis v. American Family Mutual

Insurance Co., where the court quoted Appleman regarding

the purpose of fire insurance policies: “[f]ire insurance ‘is

intended to cover every loss, damage, or injury proximately

caused by fire, and every loss necessarily following directly

and immediately from such peril or from the surrounding

circumstances, the operation and influence of which could not

be avoided.’” 61 P.3d 22, 27 (Ariz. Ct. App. 2002) (quoting

5 John A. Appleman & Jean Appleman, Insurance Law &

Practice § 3082 (1970)).3

Under the Appleman definition of direct and proximate

cause as adopted by Arizona, it is possible that the fire

directlycaused Stankova’s loss in “an unbroken sequence and

connection between” the wildfire and the destruction of the

house. 5 J. Appleman at § 3083. A reasonable factfinder

could conclude that the destruction of the house was caused

by the fire, which likely caused the mudslide, “the operation

and influence of which could not be avoided.” Id. at § 3082.

Thus, although an efficient proximate cause analysis is

not appropriate under Arizona law, we need not apply that

doctrine in order to find that the damage here could have been

3

In Koory v. Western Cas. & Sur. Co., the Supreme Court of Arizona

held that “direct usually means proximate or immediate” in the context of

an insured purchasing insurance against “all direct loss caused by

windstorm.” 737 P.2d 388, 390 (Ariz. 1987) (internal quotation marks

and alternations omitted) (quoting 5 John A. Appleman&Jean Appleman,

Insurance Law & Practice § 3142 (1970)). The court noted that “[i]n

Arizona, as in most jurisdictions, an act or force need not be the sole cause

of damage for causation to exist.” Id. (emphasis added).

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12 STANKOVA V. METRO. PROP. & CAS. INS. CO.

directly and proximately caused by the wildfire. A more

limited analysis reaches the same result. Stankova produced

some evidence that no mudslides or flooding had ever

occurred on that property before, that wildfires commonly

cause mudslides as a result of deforestation and erosion, and

that the rains were not unusually heavy that year. The

damage occurred only about a month after the fire was

contained. Liristis is particularly instructive to us on this

issue. The Liristis court found that mold damage, caused by

water used to extinguish a fire, could be covered under fire

coverage, even though coverage for loss due to mold itself

was excluded under the policy. Id. at 26.

Metropolitan argues that Liristis is distinguishable,

because the covered event (fire) caused the loss (mold); the

excluded event (mold) did not cause a loss to the property. 

Applying that argument, Metropolitan asserts that the

excluded event (earth movement) was the cause of the loss. 

However, we do not agree with Metropolitan’s argument. In

Liristis, the court found that the fire could have caused the

mold, because the water (used to quash the fire) caused the

mold. Here, Stankova’s evidence suggests that the fire

caused damage to the house (by burning the surrounding

vegetation), because otherwise the water would not have

caused the earth to move.

Metropolitan also suggested at oral argument that because

the exclusion language in the Liristis’s policy varied from the

exclusion language here, Arizona law does not preclude

exclusions from direct loss from fire. We again do not agree

with Metropolitan’s interpretation of Liristis. In Liristis, the

parties raised the coverage issue, in part, based on the policy

language. Id. at 26. The court addressed the coverage issue

as a policy question. Id. The Arizona court did not suggest

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 13

that American Family would have prevailed had the policy

been drafted differently. Id. Rather, it suggested that the

policy (as drafted) did not make any exclusions. Id. Most

importantly, the court’s analysis did not end there. Instead,

the court addressed the policy considerations of the insurance

contract. Id. at 27. It concluded, “The purpose of the

transaction between Plaintiffs and American Family—the

purchase of a homeowners policy which includes fire

insurance—supports interpreting the policy to cover mold

damage caused by fire.” Id.

The purpose of the Liristis policy was the same purpose

as the Stankova policy—to provide coverage for “sudden and

accident direct physical loss.”4See id. There is no doubt that

Metropolitan attempted to limit its coverage with its anticoncurrent causation provision (which was not present in

Liristis). However, this provision is inconsistent with

Arizona’s standard fire insurance policy, which insures

against all direct loss by fire. We know of no case that would

allow Metropolitan to contract out of the standard fire

policy’s purpose so as to exclude coverage for this type of

direct loss from fire.

The evidence in the record before us is limited, but the

district court erred in concluding that, under Arizona law, the

insurer was entitled to summary judgment. There is a triable

4 Because the Arizona Court of Appeals found that the policy

considerations and policy language allowed for coverage for direct loss

from fire damage, it did not address the “concurrent causation” issue. 

Liristis, 61 P.3d at 28. The resolution of the concurrent causation

language here determines whether the Metropolitan policy conflicts with

the standard fire policy. As previously noted, to the extent that the

Metropolitan policy conflicts with the provisions in the standard policy,

the standard policy provisions govern. See Nangle, 713 P.3d at 1257.

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14 STANKOVA V. METRO. PROP. & CAS. INS. CO.

issue as to whether the fire directly caused the destruction of

Stankova’s home. The district court’s grant of summary

judgment is REVERSED and the case REMANDED for

trial or further proceedings.

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