Safeco Insurance Co. of America v. Hirschmann , 112 Wash. 2d 621 ( 1989 )

Callow, C.J.

(dissenting) — The court is presented with an insurance contract which unambiguously excludes coverage for loss caused by landslide, whether also caused by a covered peril or not. The insureds are attempting to recover for loss resulting when a rain-soaked hill collapsed, destroying their home. Despite clear language negating coverage, the majority holds the insurer liable. The majority does not justify this result. I dissent.

Insurance policies are to be construed as contracts. State Farm Gen. Ins. Co. v. Emerson, 102 Wn.2d 477, 480, 687 P.2d 1139 (1984). This court should look first to the contract language to determine whether a policy covers a particular loss.

As a private contractor, an insurer is permitted to limit its liability unless to do so would be inconsistent with public policy; and when inconsistent public policy exists in such cases, it will ordinarily be found in a regulatory statute.

Britton v. Safeco Ins. Co. of Am., 104 Wn.2d 518, 528-29, 707 P.2d 125 (1985). See also Eurick v. Perneo Ins. Co., 108 Wn.2d 338, 343-44, 738 P.2d 251 (1987); State Farm Gen. Ins. Co. v. Emerson, 102 Wn.2d 477, 483, 687 P.2d 1139 (1984); Progressive Cas. Ins. Co. v. Jester, 102 Wn.2d 78, 683 P.2d 180 (1984); Mutual of Enumclaw Ins. Co. v. Wiscomb, 97 Wn.2d 203, 213, 643 P.2d 441 (1982), affg on rehearing, 95 Wn.2d 373, 622 P.2d 1234 (1980). This is a fundamental principle of this State's insurance law.

The contract language is clear, explicit, and unambiguous. It provides:

We do not cover loss caused by any of the following excluded perils, whether occurring alone or in any sequence with a covered peril:

2. Earth Movement, meaning . . . landslide. . . . (Italics mine.) The italicized language plainly and specifically bars recovery for losses caused jointly by covered and excluded risks.

The insurer has set forth sound reasons for excluding coverage for loss due to landslide. The risk of loss due to landslide varies greatly among insurance purchasers. Those purchasers at little risk of landslide loss would be unwilling to pay the higher premium price which the insurer would have to charge to provide the additional coverage. By a process of "adverse selection," the number of insurance purchasers would decrease and the insurer's ability to spread the financial risk of the hazard over a large number of purchasers could be significantly impaired. See generally R. Keeton & A. Widiss, Insurance Law § 1.3(c), at 14-15 (1988). This exclusion thus increases both the availability and affordability of homeowner's insurance.

We should enforce unambiguous contractual language which does not violate public policy. State Farm Gen. Ins. Co. v. Emerson, supra. The majority announces, however, that it will apply an "efficient proximate cause" rule to determine coverage under this policy, regardless of the policy's language. This holding effectively deprives insurers of the right to contract for coverage excluding specific risks.

The majority invalidates unambiguous contractual language without explicitly identifying any public policy with which the challenged provisions of the policy conflict and relies on Villella v. Public Employees Mut. Ins. Co., 106 Wn.2d 806, 725 P.2d 957 (1986) and Graham v. Public Employees Mut. Ins. Co., 98 Wn.2d 533, 656 P.2d 1077 (1983) to justify its result. These cases do not explicitly rest on public policy grounds and, therefore, deserve careful reexamination to see whether, in truth, "public policy concerns are implicit in the two decisions." Safeco Ins. Co. of Am. v. Hirschmann, 52 Wn. App. 469, 474, 760 P.2d 969 (1988).

In Graham, Mount St. Helens erupted, resulting in a mudflow which destroyed the insured home. 98 Wn.2d at 534. The insurance company's policy stated that:

We do not cover loss resulting directly or indirectly from . . .

. . . Earth Movement. Direct loss by fire, explosion, theft, or breakage of glass or safety glazing materials resulting from earth movement is covered.

(Italics mine.) 98 Wn.2d at 535. Assuming the eruption was an "explosion resulting from earth movement" within the meaning of the policy, the court considered whether the eruption "directly caused" the loss. 98 Wn.2d at 536.

The court noted that "cause" can have at least two different meanings: (1) "direct, violent, and efficient cause," Bruener v. Twin City Fire Ins. Co., 37 Wn.2d 181, 185, 222 P.2d 833, 23 A.L.R.2d 385 (1950), and (2) "efficient and predominant" (i.e., proximate) cause, Stoneman v. Wick Constr. Co., 55 Wn.2d 639, 643, 349 P.2d 215 (1960). The court determined that "direct loss" referred to the second of these meanings, 98 Wn.2d at 538, and interpreted ambiguous contractual language to the advantage of the insured.

In Villella, a negligently installed drainage system destabilized the soil which caused the foundation of the house to drop, resulting in damage. 106 Wn.2d at 808-09. The policy excluded loss resulting from:

Earth Movement. Meaning any loss caused by, resulting from, contributed to or aggravated by . . .

. . . earth sinking . . .

106 Wn.2d at 809. The court stated that earth movement "contributed to or aggravated the loss," thus bringing it within the definition of an excluded peril. 106 Wn.2d at 819. However, the court held that the insurer would be required to provide coverage if third party negligence (a covered peril) were determined to be the "efficient proximate cause" of the loss. 106 Wn.2d at 819.

In Villella, the policy defined earth movement to include loss "contributed to or aggravated by" earth movement. Although the policy excluded coverage for earth movement, it did not specifically exclude coverage for loss due to earth movement and a different covered peril. Properly construing this ambiguity against the insurer, the court stated that "where an insured risk itself sets into operation a chain of causation in which the last step [is] an excepted risk, the excepted risk will not defeat recovery." 106 Wn.2d at 815. Villella again interpreted ambiguous contractual language to the advantage of the insured.

Graham and Villella thus depended upon ambiguous language in the insurance contract for their results. These cases show that merely by excluding coverage for loss caused by certain defined perils, an insurance policy does not plainly negate coverage for losses caused by both covered and excluded perils. Neither Graham nor Villella justify the invalidation of specific contractual language that clearly negates such coverage.

The California cases discussed at length in Villella also do not justify the invalidation of the unambiguous provisions of this contract. The California decisions are based in part on a specific regulatory statute:

An insurer is liable for a loss of which a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss of which the peril insured against was only a remote cause.

California Ins. Code § 530 (Deering 1976), cited in Farmers Ins. Exch. v. Adams, 170 Cal. App. 3d 712, 216 Cal. Rptr. 287, 292 (1985); Sabella v. Wisler, 59 Cal. 2d 21, 377 P.2d 889, 896, 27 Cal. Rptr. 689 (1963). We should look to Washington's, not California's, regulatory statutes as the source of our public policy.

The other cases cited in Villella and Graham interpret differently worded, ambiguous policies. See, e.g., Wyatt v. Northwestern Mut. Ins. Co., 304 F. Supp. 781, 783 (D. Minn. 1969); Standard Elec. Supply Co. v. Norfolk & Dedham Mut. Fire Ins. Co., 1 Mass. App. 762, 307 N.E.2d 11 (1974); Mattis v. State Farm Fire & Cas. Co., 118 Ill. App. 3d 612, 454 N.E.2d 1156 (1983); Gowans v. Northwestern Pac. Indem. Co., 260 Or. 618, 489 P.2d 947, 948, 491 P.2d 1178 (1971). Support for the majority holding is feeble at best.

Contrary to settled law, the majority invalidates unambiguous language in an insurance contract without stating how it is inconsistent with this State's public policy. The insurance industry's ability to segregate and manage risk will be severely impaired. Insurance purchasers may be required to choose between high premiums or forgoing ''all-risk" coverage entirely. Public policy does not uphold, but strongly indicates a result other than the majority position.

I dissent.

Dolliver, J., concurs with Callow, C.J.