JurisdictionUnited States


Differences Between Property and Liability Policies

A. All Insurance Is Not the Same

1. Property

Insurance policies are contracts between an insurer and an insured that are designed to provide indemnity from the insurer to the insured. The language of insurance contracts is published in multiple formats with almost an infinite variety of terms and conditions. The Insurance Services Office publishes thousands of different forms of insurance policy terms and conditions. Modifications continue as case law in different states requires modification of insurance policy wording to fulfill the intent of the drafters. Although most are now stored electronically I still have in my office more than seventeen linear feet of policy wordings in three ring binders not to mention gigabytes of forms stored electronically.

An insurance contract can be written to contain nearly any terms that the parties choose. For example, in State Farm Fire & Cas. Co. v. Slade, 747 So. 2d 293, 313 (Ala. 1999), the court stated: “[I]nsurance companies and their insureds are free to agree to any terms in a contract so long as they do not offend some rule of law or contravene public policy.”

People who own property face the risk of losing that property to perils like fire, lightning, windstorm, hail, earthquake, or vandalism. Insurers spread this risk of loss between their customers and make it affordable for individuals to take the risk.

2. Liability

Like property insurance, liability insurance is protection provided to the insured against the risks of loss faced in everyday living. Unlike the risks taken by property insurers, the risks of loss taken by liability insurers are those that are the result of acts or omissions of the person insured that will cause him or her to be sued or pay damages to third persons for bodily injury, property damage, or other tort damages incurred by others.

The first party is the insured. The second party is the insurer. The third party is the person making a claim against an insured. Third-party or liability insurance is insurance against risks faced by the individual insured for damages he or she may be required to pay as a result of an accident caused by his or her act or omission to act.

The California Insurance Code defines liability insurance as follows:

Liability insurance includes:

(a) Insurance against loss resulting from liability for injury, fatal or nonfatal, suffered by any natural person, or resulting from liability for damage to property, or property interests of others but does not include worker’s compensation, common carrier liability, boiler and machinery, or team and vehicle insurance.

. . .

(c) Insurance covering injuries sustained by an insured resulting from a tort committed by a third party against which such third party is not himself covered by liability insurance;

(d) Insurance coverage against the legal liability of the insured, and against loss, damage, or expense incident to a claim arising out of the death or injury of any person as the result of negligence or malpractice in rendering professional services by any person who holds a certificate or license. [California Insurance Code § 108.]

This legislation is a rather detailed summary of years of common law defining the purpose and types of liability insurance that have evolved since the 13th century. It fits definitions that would apply in those states that have not codified a definition of liability insurance as has California.

As you read Garvey v. State Farm Fire & Cas. Co. below, recognize that until it was decided, hundreds of lawsuits were pursued claiming that when a cause of loss not excluded concurred with excluded causes to bring about a loss, the insured would be able to obtain indemnity. In those cases, if 1 percent of the cause was covered and 99 percent was excluded, courts would find coverage. The California Supreme Court put the issue to rest and gave insurers immediate resolution to many pending lawsuits by applying traditional rules of insurance interpretation.

As you read the next case consider:

Ÿ What is a cause?

Ÿ What is a peril?

Ÿ What is an efficient proximate cause?

Ÿ What is a concurrent cause?

Ÿ Does the concurrent cause doctrine apply to first-party property policies?

Ÿ Does the concurrent cause doctrine apply to third-party liability insurance policies?

Ÿ Do concurrent cause exclusions written into modern insurance policies effectively prevent courts from applying the concurrent cause doctrine?

Ÿ How would you advise a third-party insurer that wishes to exclude application of the concurrent cause doctrine?

Ÿ What advice would you give a liability insurer who is faced with a suit against an insured that involves an excluded and a non-excluded cause of loss?

Ÿ What investigation would you recommend for an insurer faced with a potential concurrent cause claim?

Garvey v. State Farm Fire and Cas. Co.
48 Cal. 3d 395, 770 P.2d 704, 257 Cal. Rptr. 292 (1989)

We granted review to consider the Court of Appeal’s reversal of a directed verdict of coverage in favor of Jack and Rita Garvey (hereafter plaintiffs). We sought to resolve some of the confusion that has arisen regarding insurance coverage under the “all risk” section of a homeowner’s insurance policy when loss to an insured’s property can be attributed to two causes, one of which is a nonexcluded peril, and the other an excluded peril.

In recent years, some courts have misinterpreted and misapplied our decisions in Sabella v. Wisler, 59 Cal. 2d 21 (1963), and State Farm Mut. Auto. Ins. Co. v. Partridge, 10 Cal. 3d 94 (1973). In so doing, they have allowed coverage in first party property damage cases under our holding in Partridgeby inappropriately using the Partridge concurrent causation approach as an alternative to Sabella’s efficient proximate cause analysis.1 This extension of the analysis in Partridge, a third party liability case, allows coverage under a first party property insurance policy whenever a covered peril is a concurrent proximate cause of the loss, without regard to the application of specific policy exclusion clauses.2 Such reasoning ignores the criteria set forth in Insurance Code sections 530 and 532,3 the relevant analysis in Sabella and the important distinction between property loss coverage under a first party property policy and tort liability coverage under a third party liability insurance policy. Indeed, because a covered peril usually can be asserted to exist somewhere in the chain of causation in cases involving multiple causes, applying the Partridge approach to coverage in first party cases effectively nullifies policy exclusions in “all risk” homeowner’s property loss policies, thereby essentially abrogating the limiting terms of insurance contracts in such cases. We cannot believe Partridge intended such a sweeping result in first party property loss cases. To the contrary, as we explain below, we must put Partridge in its proper perspective, i.e., that decision should be utilized only in liability cases in which true concurrent causes, each originating from an independent act of negligence, simultaneously join together to produce injury. Therefore, as will appear, we conclude this case should be remanded to the Court of Appeal with directions to remand to the trial court for a jury determination of causation pursuant to Sabella, supra, 59 Cal. 2d 21.



Plaintiffs bought their house in the mid-1970’s. In 1977, plaintiffs purchased from State Farm Fire and Casualty Company (hereafter defendant) an “all risk” homeowner’s policy of insurance which was in effect at all times relevant. Section I of the policy in question provided coverage for “all risks of physical loss to the property covered” except as otherwise excluded or limited. Losses excluded by this portion of the policy included those “caused by, resulting from, contributed to or aggravated by any earth movement, including but not limited to earthquake, volcanic eruption, landslide, mudflow, earth sinking, rising or shifting,” and losses caused “by . . . settling, cracking, shrinkage, bulging or expansion of pavements, patios, foundations, walls, floors, roofs or ceilings. . . .”

In August 1978, plaintiffs noticed that a house addition, built in the early 1960’s, had begun to pull away from the main structure. They also discovered damage to a deck and garden wall. There ensued numerous phone calls, letters, meetings and investigations as plaintiffs tried to determine from defendant whether the damage was covered by their homeowner’s property insurance policy.

In October 1979, after receiving from its counsel an opinion that the loss was not covered, defendant notified plaintiffs by letter that the “policy excludes coverage for the loss herein. Normally, such a denial of coverage would leave you to your remedies. [ para. ] However, because the company wishes to resolve the coverage issue in an atmosphere free from extraneous matters such as bad-faith and class action issues, the company is prepared to advance you the claimed sum of $11,550 subject to a reservation of rights as authorized by Johansen v. CSAA, 15 Cal. 3d 9. . . .” Under the agreement proposed, defendant would make the advance and file a declaratory relief action on the issue of coverage; plaintiffs would pay back the advance if the court ruled in defendant’s favor, would waive “any claim of consequential or punitive damages arising out of any allegation of bad-faith, mental distress, oppression, fraud or insurance-related tort,” and would not “institute any class-action against defendant on account of the facts and issues involved in this loss and claim.”

After refusing to sign the foregoing agreement, plaintiffs sued, claiming that although their policy excluded coverage for losses caused or aggravated by earth movement, it implicitly provided coverage for losses caused by contractor negligence because negligence was not a specifically excluded peril under the policy. Plaintiffs...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT