State Farm Fire & Casualty Co. v. Bongen , 925 P.2d 1042 ( 1996 )

OPINION

COMPTON, Chief Justice.

I. INTRODUCTION

A home owned by Jerome Bongen and Elizabeth Bongen was destroyed by a mudslide. After their insurer denied coverage, the Bongens sued. They alleged that the mudslide was caused by construction activity carried out above their property. On cross-motions for partial summary judgment, the superior court held that a provision in the Bongens’ insurance policy excluding from coverage any loss resulting from earth movement, regardless of the cause, was unenforceable. We reverse.

II. FACTS AND PROCEEDINGS

Jerome Bongen and Elizabeth Bongen owned a home on Pillar Mountain in Kodiak. In the late 1980⅛, Kodiak Electric Association (KEA) clear-cut a right-of-way above the home to install transmission lines on City of Kodiak property. On October 31, 1991, following heavy rains, a mudslide destroyed the Bongen home. According to the Bongens’ expert, the KEA transmission line project “contributed to or caused damage” to the Bongen home.

The Bongens filed a claim with their insurer, State Farm Fire and Casualty Company (State Farm). Their policy contained the following exclusion:

We do not insure under any coverage for any loss which would not have occurred 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; or (b) other causes of the loss; or (c) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss; or (d) whether the event occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these:

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Earth Movement, meaning the sinking, rising, shifting, expanding or contracting of earth, all whether combined with water or not. Earth movement includes but is not limited to earthquake, landslide, mudflow, sinkhole, subsidence and erosion. Earth movement also includes volcanic explosion or lava flow....

State Farm denied coverage based on this exclusion.

The Bongens thereafter commenced this action against State Farm, KEA, and the City of Kodiak. State Farm moved for partial summary judgment on the ground that the Bongens’ policy excluded coverage for mudslides. The Bongens filed a cross-motion for partial summary judgment, which the superior court granted. The superior court held that the “efficient proximate cause” rule¹ applies to multiple causation insurance cases in Alaska, and that public policy prohibits an insurance company from circumventing the rule through contractual language. We granted State Farm’s petition for review of this decision.

III. DISCUSSION

A. Standard of Review

The interpretation of contract language is a question of law, subject to de novo review. Cox v. Progressive Cas. Ins. Co., 869 P.2d 467, 468 n. 1 (Alaska 1994) (citations omitted). “This Court interprets insurance contracts by looking to the language of the disputed policy provisions, the language of other provisions of the policy, and to relevant extrinsic evidence. In addition, we also refer to case law interpreting similar provisions.” Id.

B. The Earth Movement Exclusion is Enforceable.

The Bongens argue that, under the efficient proximate cause rule, the loss of their house is covered under the insurance policy. They claim that “the negligence of [KEA] and the City of Kodiak in undermining the soils above the homes” is a “covered event.”

The Bongens’ policy excluded from coverage any loss resulting from earth movement, regardless of the cause of the earth movement, and regardless of whether a non-excluded risk acted “concurrently or in any sequence with” earth movement. The superior court found that “both parties apparently agree that the policy terms as written exclude coverage in the present ease.”² In holding that the earth movement exclusion was unenforceable, the superior court relied primarily on Safeco Insurance Co. v. Hirschmann, 112 Wash.2d 621, 773 P.2d 413 (1989).

In Hirschmann, the Supreme Court of Washington held that an insurer is obligated to pay for damages resulting from a combination of covered and excluded perils if the efficient proximate cause is a covered peril, regardless of a policy exclusion stating the contrary. Id., 773 P.2d at 416-17. The court criticized the insurer’s attempt to circumvent the efficient proximate cause rule, id. at 414, but did not fully explain why such a practice is prohibited. Instead, Hirschmann relied on an earlier Washington case, Villella v. Public Employees Mutual Insurance Co., 106 Wash.2d 806, 725 P.2d 957 (1986), which, in turn, relied on California cases holding that insurers could not circumvent the efficient proximate cause rule. Villella, 725 P.2d at 962-64. In California, insurers are statutorily required to provide coverage if the efficient proximate cause is an insured risk.³ See Cal. Ins.Code §§ 530, 532; Howell v. State Farm Fire & Cas. Co., 218 Cal.App.3d 1446, 267 Cal.Rptr. 708, 712 (1990). Neither Hirschmann nor Villella notes the unique statutory provision behind the California eases.⁴

Most courts addressing the validity of exclusionary language actually or functionally identical to that found in the Bongens’ policy have held that the exclusion is enforceable. In Alf v. State Farm Fire & Casualty Co., 850 P.2d 1272 (Utah 1993), for example, the main waterline into the insureds’ home ruptured, causing extensive flooding and erosion. Id. at 1273. The insureds argued that the earth movement exclusion — identical to the exclusion in the present case — should not apply because the efficient proximate cause of the damage was the burst waterline, a covered risk. The court rejected their argument, holding that under the exclusion, “coverage for damage resulting from earth movement [is excluded], despite the fact that the cause of the earth movement is a covered peril.” Id. at 1275. The court concluded that “the proper path to follow is to recognize the efficient proximate cause rule only when the parties have not chosen freely to contract out of it.” Id. at 1277.

Other courts are in accord with this position. See, e.g., Front Row Theatre, Inc. v. American Mfrs. Mut. Ins. Co., 18 F.3d 1343, 1347 (6th Cir.1994) (“When damage to an insured’s property is caused by both a covered and an excluded event, coverage may be expressly precluded by language in the policy.”); Schroeder v. State Farm Fire & Cas. Co., 770 F.Supp. 558, 561 (D.Nev.1991) (“[T]he parties could, as they did, contract out of the efficient proximate cause doctrine without violating public policy.”); Millar v. State Farm Fire & Cas. Co., 167 Ariz. 93, 804 P.2d 822, 826 (1990); Kane v. Royal Ins. Co. of America, 768 P.2d 678, 684 (Colo.1989) (“[T]he ‘efficient moving cause’ rule must yield to the language of the insurance policy in question.”); Ramirez v. American Family Mut. Ins. Co., 652 N.E.2d 511, 514-15 (Ind. App.1995); Kula v. State Farm Fire & Cas. Co., 212 A.D.2d 16, 628 N.Y.S.2d 988, 991 (1995); State Farm Fire & Cas. Co. v. Paulson, 756 P.2d 764, 769 (Wyo.1988).

We favor the majority rule. It is well established that “[t]he obligations of insurers are generally determined by the terms of their policies.” Bering Strait Sch. Dist. v. RLI Ins. Co., 873 P.2d 1292, 1294 (Alaska 1994); see also State v. Underwriters at Lloyds, London, 755 P.2d 396, 400 (Alaska 1988) (quoting 6B J. Appleman, Insurance Law and Practice § 4254 (Buckley ed. 1979)) (“The intention of the parties as to the coverage of a policy is determined by the words which they have used.”). We have held that where an insurer “limits the coverage of a policy issued by it in plain language, this court recognizes the restriction.” Insurance Co. of North America v. State Farm Mut. Auto. Ins. Co., 663 P.2d 953, 955 (Alaska 1983). We can discern no sound policy reason for preventing the enforcement of the earth movement exclusion to which the parties in this case agreed. We therefore align ourselves with those courts holding that an insurer may expressly preclude coverage when damage to an insured’s property is caused by both a covered and an excluded risk. The earth movement exclusion in the Bongens’ policy is enforceable.

C. The Earth Movement Exclusion Is Not Ambiguous.

Since insurance policies are contracts of adhesion, ambiguities are interpreted in favor of the insured. See Bering Strait Sch. Dist., 873 P.2d at 1295. The Bongens argue that the earth movement exclusion is ambiguous, and that a layperson would reasonably expect the exclusion to apply only to earth movement caused by “natural phenomena.”

This same argument has been rejected by other courts construing insurance policy language substantially the same as that at issue here. In Village Inn Apartments v. State Farm Fire & Casualty Co., 790 P.2d 581 (Utah App.1990), for example, an underground water pipe ruptured on the premises of an apartment complex, damaging the building’s foundation. The insureds sought a declaratory judgment that the loss was covered by their insurance policy which, like the Bongens’ policy, excluded from coverage losses resulting from earth movement “regardless of ... the cause of the excluded event.” Id. at 582. The insureds argued that the exclusion did not apply because earth movement referred only to natural phenomena, and that the exclusion was ambiguous and should be construed in their favor. Id. at 583. The court held that the exclusion was unambiguous, and that the losses resulting from the broken water pipe were excluded under the earth movement provision:

Since the exclusion is for earth movement loss from any cause, we can only conclude earth movement encompasses both natural and human processes.

Id. Other courts construing State Farm’s earth movement exclusion have reached similar results. See Rodin v. State Farm Fire & Cas. Co., 844 S.W.2d 537 (Mo.App.1992); Schroeder, 770 F.Supp. at 560-61; Millar, 804 P.2d at 824-25; Kula, 628 N.Y.S.2d at 990-991; Alf, 850 P.2d at 1275-76.

We are persuaded by the reasoning of these cases. The Bongens’ policy contains not only the “regardless of the cause” language found determinative in Village Inn and the other cited cases, but also a proviso excluding from coverage losses resulting from earth movement regardless of whether the earth movement arose “from natural or external forces.” To accept the Bongens’ argument in light of this clear language would be to create an ambiguity where none exists. See Village Inn, 790 P.2d at 583 (“A policy term is not ambiguous ... merely because one party assigns a different meaning to it in accordance with his or her own interests.”). We hold that the earth movement exclusion in the Bongens’ policy is not ambiguous, and that earth movement, as that term is used in the policy, encompasses both natural phenomena and human processes.

Only one other court has construed policy language identical to that at issue here. In Cox v. State Farm Fire & Casualty Co., 217 Ga.App. 796, 459 S.E.2d 446 (1995), the Georgia Court of Appeals ruled that the language excluded only losses caused from natural disasters. Id., 459 S.E.2d at 447-48. We decline to follow Cox. To explain why, it is necessary to first present some background information about the earth movement exclusion.

The precise language at issue in the Bon-gens’ policy is a very recent addition to State Farm’s standard homeowner’s insurance policy. In the mid-1980’s, many insurance companies added a “lead-in clause” to the “Losses not Insured” section of their policies.⁵ The lead-in clause stated:

We do not insure for loss which would not have occurred 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; or b) other causes of the loss; or e) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss....

Fierce at n. 74 and accompanying text. Courts interpreting this language have held that, when read with the earth movement exclusion, the policy excludes coverage for losses caused by both natural and man-made earth movement.⁶

Until the insurance companies added the lead-in clause, courts often limited the earth movement exclusion to natural disasters, due to the doctrine of ejusdem generis.⁷ Ejus-dem generis, a doctrine which we have applied in previous cases, essentially states that a general term, when modified by specific terms, will be interpreted in light of those specific terms, absent a clear indication to the contrary.⁸ Courts interpreting the lead-in clause have read it as providing a clear indication that the earth movement exclusion is not intended to be limited to losses caused by natural disasters.

State Farm has now added additional language to its lead-in clause, which is in the Bongens’ policy. The new language, added to the end of the lead-in clause, reads:

d) whether the event occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these.

This is the language which only this court and the Cox court have examined.

In Cox, a house was damaged by vibrations from explosions in the vicinity of the Cox’s property. Cox, 459 S.E.2d at 447. Explosions were a covered peril, but earth movement was not. Id. The earth movement exclusion contained the precise language contained in the Bongens’ policy. Despite the lead-in clause, the court ruled that ejusdem generis applied, and that the exclusion was limited to losses caused by natural disasters. Cox does not address the first three sections of the lead-in clause, but only interprets the “natural or external forces” language of the addition to the lead-in clause. The court in Cox found that the word “external” is not defined in the policy, that “external” by its literal definition means “apart, beyond, exterior or connected to the outside,” and that this definition did not encompass man-made earth movements. Id. at 447 — 48.

We decline to follow Cox for two reasons. First, Cox ignores the other sections of'the lead-in clause, one of which states that coverage is excluded “regardless of: a) the cause of the excluded event-” Clearly, this language encompasses earth movement caused by either nature or humans. Second, Cox ⅛ definition of “external” is incomplete. It is true that, standing alone, the word “external” does not refer to anything man-made. However, the word must be read in context (“We do not insure for such loss regardless of ... whether the event ... arises from natural or external forces_”). It is apparent that, when read in context, “external” means “external from natural forces,” which could only mean man-made forces.

D. Application of the Earth Movement Exclusion Does Not Defeat the Reasonable Expectations of the Parties.

The Bongens argue that application of the earth movement exclusion would defeat their reasonable expectations of coverage. We construe insurance contracts “so as to provide that coverage which a layperson would have reasonably expected from a lay interpretation of the policy terms.” Serradell v. Hartford Acc. & Indem. Co., 843 P.2d 639, 641 (Alaska 1992). However, since most insureds develop an expectation that every loss will be covered, the reasonable expectation doctrine “must be limited by something more than the fervent hope usually engendered by loss.” Millar, 804 P.2d at 826-27 (“If ... all that was required to defeat the operation of a policy exclusion under the reasonable expectation doctrine was a provision attempting to qualify or limit the scope of policy coverage, then every policy exclusion would be invalid as contrary to the insured’s reasonable expectation of coverage”). In order to determine the reasonable expectations of the parties, we look to 1) the language of the disputed policy provisions; 2) the language of other policy provisions; 3) relevant extrinsic evidence; and 4) ease law interpreting similar provisions. Bering Strait, 873 P.2d at 1295.

Given these four sources of guidance in interpreting the reasonable expectations of the insureds, we conclude that the Bongens could not have reasonably expected coverage for loss resulting from earth movement. The lead-in clause and the earth movement exclusion clearly exclude coverage for any loss in which earth movement was a concurrent cause. The Bongens have not pointed to any other provision in the policy which contradicts the exclusion. There is no relevant extrinsic evidence indicating that the Bon-gens, prior to the loss, expected coverage for a loss caused in part by earth movement.⁹

Finally, the only precedent from other jurisdictions which would find coverage in spite of the exclusionary language is from California and Washington. As explained above, the California rule is derived from statute, see Howell, 267 Cal.Rptr. at 712, and Alaska has no equivalent statute. The Washington eases apply the California rule without significant further analysis. See, e.g., Villella, 725 P.2d at 962-64. The great majority of courts considering the issue have held that the earth movement exclusion is enforceable. See Discussion at § B, supra.

For all of these reasons, we conclude that it would not be reasonable for the Bongens to have expected that the efficient proximate cause rule would apply in Alaska, and that their loss would be covered despite the earth movement exclusion.

IV. CONCLUSION

We REVERSE the superior court, and direct it to enter partial summary judgment in State Farm’s favor.

MOORE, J., not participating.

1 . Some courts define the efficient proximate cause as the first, or precipitating cause in a multiple causation case:

[W]hen a loss is sustained by a sequence or concurrence of at least two causes, one covered under [an insurance] policy and the other excluded under the policy, the cause setting the chain of events in motion is the cause to which the loss is attributed. Thus, if the "first" cause is covered, the loss is covered even if an uncovered loss is involved in the chain of events.

Schroeder v. State Farm Fire and Cas. Co., 770 F.Supp. 558, 561 (D.Nev.1991). Other courts have defined efficient proximate cause to mean the predominant cause, rather than the cause which is first in time. We have not yet considered the rule in reference to homeowners' policies, and we express no opinion as to whether it applies in the absence of policy language to the contrary.

The superior court partially based its decision to adopt the “efficient proximate cause” rule on this court's decision in Bering Strait School District v. RLI Insurance Co., 873 P.2d 1292 (Alaska 1994). However, the efficient proximate cause rule was not specifically litigated in that case, and we did not rule on the issue. It is true that we quoted language from a Washington State case that referred to the rale. See Id. at 1297 (quoting Starczewski v. Unigard Ins. Group, 61 Wash.App. 267, 810 P.2d 58, 62 (1991)). However, Starczewski was one of three cases cited to support a point of law that is not predicated on the efficient proximate cause rule. Therefore, we do not view Bering Strait as controlling precedent for the issue at hand.

2 .Jerome Bongen testified that when he was shown the earth movement exclusion by a State Farm agent he understood it, and saw “in black and white" that "we wouldn't be covered.”

3 . Alaska has no equivalent statute.

4 . For an analysis critical of Hirschmann, see Lawrence Alan Wans, Comment, Washington’s Judicial Invalidation of Unambiguous Exclusion Clauses in Multiple Causation Insurance Cases, 67 Wash. L.Rev. 215, 231-32 (1992).

5 . Richard A. Fierce, Insurance Law — Concurrent Causation: Examination of Alternative Approaches, 1985 S. Ill. U. L.J. 527, n. 74 and accompanying text (1985); Brian Mattis, Earth Movement Claims Under All Risk Insurance: The Rules Have Changed In California, 31 Santa Clara L.Rev. 29, n. 39-41 and accompanying text (1990).

6 . See, e.g., Kula, 628 N.Y.S.2d at 990-91; Alf, 850 P.2d at 1275-76; Village Inn, 790 P.2d at 583.

7 . Several of the cases which the Bongens cite for their contention that the earth movement exclusion is ambiguous interpret policies which do not contain the lead-in clause, to which courts then applied ejusdem generis in order to limit the exclusion to losses caused by natural disasters. See, e.g., Gullett v. St. Paul & Marine Ins. Co., 446 F.2d 1100 (7th Cir.1971); Peach State Uniform Serv., Inc. v. American Ins. Co., 507 F.2d 996 (5th Cir.1975); Wisconsin Builders, Inc. v. General Ins. Co. of America, 65 Wis.2d 91, 221 N.W.2d 832 (1974).

8 .According to Black’s Law Dictionary (6th ed.1990), the term is defined as follows:

Of the same kind, class, or nature.... [W]here general words follow an enumeration of persons or things, by words of a particular and specific meaning, such general words are not to be construed in their widest extent, but are to be held as applying only to persons or things of the same general kind or class as those specifically mentioned.... The rule, however, does not necessarily require that the general provision be limited in its scope to the identical things specifically mentioned. Nor does it apply when the context manifests a contrary intention.

(Emphasis added.)

9 . Indeed, it appears as if their expectation was that such a loss would not be covered. See footnote 2, supra.