In 2015, more than 9 million acres were burned in the UnitedStates as a result of wildfires. The National Interagency FireCenter reports that significant fire potential was normal acrossmost of the United States for the first few months of 2016, withabove normal potential in the Great Lakes states, the Ohio andTennessee valleys, and the Hawaiian Islands in March and April.

Late in 2015, global risk and reinsurance specialist GuyCarpenter estimated that insured losses for the year due towildfires could reach $1.75 billion.

Wildfires themselves are not the only cause of damage — theaftermath can be just as destructive, with landslides and flashfloods occurring where fire has burnt away trees and plants thatprevent erosion.

While loss caused directly by fire would generally be covered,property policies, such as the ISO Homeowners policy, usuallycontain anti-concurrent causation language applicable to the earthmovement exclusion, which includes landslide, mudslide, andmudflow. The anti-concurrent causation language also applies to thewater exclusion, which excludes losses caused by flood and surfacewater. The form states that loss from such perils is excluded“regardless of any other cause or event contributing concurrentlyor in any sequence to the loss.”

Fire loss and proximate cause

The Ninth Circuit Court of Appeals was recently asked tointerpret this language when a wildfire destroyed all thevegetation on a hillside, and a month later flooding and mudslidesdestroyed a home located nearby in Stankova v. MetropolitanProperty & Cas. Ins. Co., 788 F. 3d 1012 (9th Cir.2015).

Magda Stankova and Victor Nikolaev owned a home and detachedgarage in Alpine, Ariz. A massive wildfire that burned for over amonth destroyed vegetation on the hillside near their home, as wellas their detached garage. A month later, there was a mudslide onthe hillside, which destroyed the home.

The homeowners insurer, Metropolitan, provided coverage for theloss of the garage but not for the house, stating that the home wasdestroyed by flood water and earth movement, which were bothexcluded under the policy. The insureds argued that the fire wasthe proximate cause of the loss. The court pointed out that Arizonahas not adopted the efficient proximate cause doctrine.

Arizona state statutes require that all fire insurance policiesconform to the New York standard policy of 1943. If a policyconflicts with the standard form's provisions, the standard policyprevails. The court's central question was whether the firedirectly caused the mudslide.

Because the state is bound by the New York standard policy, theNinth Circuit looked to New York law for guidance on what was meantby “direct” cause. It cited a 1998 case in which a New York appealscourt stated, “Loss by fire within the policy's coverage is notlimited to fire danger; rather, all losses are covered which aredirectly, proximately, or immediately caused by fire orcombustion.” The New York court went on to say that insurerliability is not “confined to loss by actual burning and consuming,but they [insurers] are also liable for all losses which are theimmediate consequences of fire or burning, or for all losses ofwhich fire is the proximate cause.”

The Ninth Circuit also looked to Appleman's Insurance Law& Practice, a treatise that has been cited in Arizonacourt cases for guidance in explaining the purpose of fireinsurance policies, which are “intended to cover every loss,damage, or injury proximately caused by fire, and every lossnecessarily following directly and immediately from such peril orfrom the surrounding circumstances.”

Using Appleman's reasoning, the court said that the firepossibly did directly cause the mudslide, which caused thedestruction of the insureds' home in an unbroken sequence. Whilethe court acknowledged that the efficient proximate cause doctrineis not appropriate in Arizona, it said that the doctrine was notnecessary “to find that the damage here could have been directlyand proximately caused by the wildfire. A more limited analysisreaches the same result.”

The insureds produced evidence that no mudslides or floods hadoccurred on that property before and that wildfires can causemudslides. There were no unusually heavy rains the year of themudslide, and only a month separated the wildfire and themudslide.

The court also found direction in Liristis v. AmericanFamily Mut. Ins. Co., 61 P.3d 22 (Ariz. Ct. App. 2002), whichinvolved mold contamination that developed from water used toextinguish a house fire. While loss by mold was excluded on thepolicy, the court in this case found that fire caused the molddamage, so it was covered.

Metropolitan argued that Liristis was distinguishablebecause fire caused the mold, but the mold did not cause theproperty loss, while in this case, the excluded flooding andmudslide caused the loss. The court disagreed, countering that theinsureds claimed the fire was the cause of the loss of their homebecause without the fire, the water would not have caused the earthmovement. The case was remanded for trial or furtherproceedings.

The 2016 wildfire season may not be in full swing yet, butinsurers and insureds should be aware of other possible losses thataccompany wildfires. As the Stankova case illustrates,these fires can lead to flood and mudslide damage, and such lossesmay or may not be covered.