City of Carlsbad v. Insurance Co. of State of Pennsylvania

This action arises out of a landslide that occurred as a result of the City of Carlsbad and the Carlsbad Municipal Water District’s (together, the City) negligent maintenance of its water system, which caused a hillside to become saturated with water. The landslide resulted in damage to and the destruction of several condominium units within the City, and the City paid approximately $12 million to settle lawsuits brought by the homeowners. The City sought indemnity from its liability insurer, Insurance Company of the State of Pennsylvania (ISOP).

When ISOP denied coverage, the City sued, and the parties brought cross-motions for summary judgment. The court granted ISOP’s motion, finding an exclusion that barred coverage for “any property damage arising out of land subsidence for any reason whatsoever” barred coverage for the property damage.

On appeal, the City asserts the court erred in granting summary judgment because (1) the exclusion is ambiguous as to whether it covers landslides regardless of the cause; (2) the exclusion does not apply to landslides caused by manmade forces; and (3) under the “efficient proximate cause” doctrine and Insurance Code section 530,…