Opinion ID: 1386321
Heading Depth: 3
Heading Rank: 2

Heading: Third Party Negligence Under an All-risks Homeowner's Insurance Policy

Text: Although we determined in Garvey that third party negligence is a covered risk unless specifically excluded by the standard homeowner's policy, we suggested there might be a narrow category of third party negligence cases in which coverage was not available. As an example, we indicated that if a structure was constructed on an insured's property solely to protect the insured's home against the operation of a specifically excluded risk and because of negligent construction the structure subsequently failed to serve its purpose and the home was damaged by the excluded risk, the damage to the house arguably should not be covered. ( Garvey, supra, 48 Cal.3d at pp. 408-409, fn. 7.) (5) State Farm contends the Court of Appeal correctly found that even if the acts and failings of the state, County, and developer amounted to negligence, such acts could never be the efficient proximate or predominant cause of the landslide because they did not involve perils distinct from excluded risks. In other words, State Farm asserts the third party negligence involved here is the type of negligence that Garvey, supra, 48 Cal.3d at pages 408-409, footnote 7, meant to exclude. State Farm claims, Each alleged act of negligence identified by [insureds]..., was negligence only because it exposed [insureds'] property to earth movement, an excluded peril.... There would have been no negligence absent the risk of earth movement. Therefore, the negligence cannot be separated from the earth movement. The negligence that occurred in this case was the undertaking of activity that exposed the insured property to greater danger of landslides and earth movement without taking counter measures to eliminate the increased risk of damage. As insureds observe, footnote 7 in Garvey does not apply to these facts. The negligent conduct outlined above, causing the landslide and resulting damage to insureds' home, was not designed to and did not fail to prevent the landslide; it was, in fact, the predominating factor precipitating the slide. It is clear that the housing tract at Big Rock Mesa was not created for the purpose of preventing earth movement; it was created as a profit-making development. Likewise, there is no indication the County approved the development in order to prevent earth movement. The septic systems were installed to dispose of household wastewater, not to prevent future landslides. Although the jury reasonably found that these acts amounted to third party negligence, none was completed for the sole purpose of protecting against the operation of a specifically excluded risk under the homeowner's policy.... ( Garvey, supra, 48 Cal.3d at p. 408, fn. 7.) Indeed, State Farm's argument would essentially render third party negligence coverage illusory. Our observation in Garvey, supra, at pages 408-409, footnote 7, simply indicated that an insured cannot automatically transform an uncovered loss into a covered one by claiming a negligent construction job existed in the chain of causation. This principle is illustrated in Davis, supra, 223 Cal. App.3d 1322, 1329-1330, in which the Court of Appeal found that coverage existed under an all-risk homeowner's policy for property loss caused by the excluded risk of settlement that, in turn, was caused by a contractor's failure to properly prepare the soil on which the home was constructed. The contractor also failed adequately to reinforce the dwelling's foundation. The insurer contended the contractor negligence was the type of negligence Garvey suggested would not be covered. In rejecting the insurer's argument, the Davis court noted, There are a number of problems with this argument.... The improvements here were not merely anti-earth movement devices; they were: (1) grading and (2) a foundation. When seen in this light, it becomes clear neither improvement was the type undertaken solely to prevent earth movement; grading is performed for a variety of reasons including providing an area on which it is cheaper and quicker to build and which may provide a lot more desirable to the final buyer[;] a foundation also provides support for the structure. ( Id. at p. 1329; see also Winans, supra, 743 F. Supp. 733, 736.) As the Davis court observed, footnote 7 in Garvey, supra, was never intended to exclude coverage for negligence when the record establishes the negligently constructed improvements were the type undertaken for reasons other than prevention of an excluded occurrence. ( Davis, supra, 223 Cal. App.3d at p. 1329.) Here, there was ample evidence that the third party negligence leading to the landslide was negligence in planning, approving, and building the Big Rock Mesa subdivision and not negligence in acting to prevent landslides resulting from natural causes. We therefore conclude that our observation regarding types of third party negligence in Garvey, supra, 48 Cal.3d at pages 408-409, footnote 7, did not preclude liability based on the jury finding that third party negligence was the efficient proximate cause of the insureds' property loss.