Magda Stankova; Victor Nikolaev v. Metropolitan Property and Casualty Insurance Company, a foreign corporation

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MAGDA STANKOVA; VICTOR
NIKOLAEV,
Plaintiffs-Appellants,
v.
METROPOLITAN PROPERTY AND
CASUALTY INSURANCE COMPANY, a
foreign corporation,
Defendant-Appellee.
No. 12-17575
D.C. No.
3:12-cv-08016-
PGR
OPINION
Appeal from the United States District Court
for the District of Arizona
Paul G. Rosenblatt, Senior District Judge, Presiding
Argued and Submitted
April 15, 2015—San Francisco, California
Filed May 29, 2015
Before: Mary M. Schroeder and N. Randy Smith, Circuit
Judges and Sharon L. Gleason,* District Judge.
Per Curiam Opinion
* The Honorable Sharon L. Gleason, United States District Judge for the
District of Alaska, sitting by designation.

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 2
SUMMARY**
Insurance Law
The panel reversed the district court’s summary judgment
in favor of an insurer, and held that under Arizona law there
was a triable issue as to whether a fire directly caused the
destruction of the insured’s home.
Approximately one month after a wildfire swept through
part of Northern Arizona, flooding and mudslides in the area
destroyed the plaintiffs’ house. Plaintiffs’ homeowners’
policy covered damage directly caused by fire, and excluded
damages caused by flooding or earth movement.
The panel held that because the Arizona standard fire
policy was based on New York’s standard fire policy, the
panel could look to New York law and treatises for guidance
in order to ascertain what “direct” causation meant in the
context of a fire insurance policy. The panel concluded that
the damage at issue could have been directly and proximately
caused by the wildfire, and remanded for trial or further
proceedings.
** This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 3
COUNSEL
Randy L. Sassaman (argued) and Michael J. Raymond,
Raymond, Greer & Sassaman, P.C., Phoenix, Arizona, for
Plaintiffs-Appellants.
Christopher M. Hanlon (argued) and James A. Robles,
Carnahan, Perry, Hanlon, Hudson, PLC., Phoenix, Arizona
for Defendant-Appellee.
OPINION
PER CURIAM:
This fire insurance case arises under Arizona law and
involves issues of causation. In the summer of 2011, a
wildfire swept through a large swath of Northern Arizona,
burning acres of vegetation. Approximately one month after
the fire was put out, flooding and mudslides in the area
destroyed Plaintiffs’ house. Plaintiffs’ homeowner’s policy
covered damage directly caused by fire, and excluded
damages caused by flooding or earth movement. The district
court granted summary judgment for the insurer, concluding
that damage caused by mudslides a month after a fire could
not, as a matter of law, be “directly” caused by fire as
required under Arizona law. Arizona law, however, favors a
broader interpretation of direct causation. We therefore
reverse and remand for further proceedings to determine
whether the fire directly caused Plaintiffs’ losses.

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 4
BACKGROUND
Plaintiffs-Appellants Magda Stankova and Victor
Nikolaev (“Stankova”) owned a home and detached garage in
Alpine, Arizona. When Stankova purchased the property in
1998, she alleges there were no disclosures or any evidence
that the house had ever been damaged by flood or mudslides,
nor was the home ever previously damaged by flood or
mudslides during the time that Stankova owned it. The home
and its garage were insured under a homeowner’s insurance
policy issued by Metropolitan Property and Casualty
Insurance Company (“Metropolitan”).
In 2011, there was a massive wildfire, the “Wallow Fire,”
in the area near the Stankova house. The fire began on May
29, 2011 and was not contained until July 8, 2011. The fire
itself consumed Stankova’s detached garage on June 13, but
did not reach the house. The wildfire also destroyed all the
vegetation on a nearby hillside. On August 6, 2011, a month
after the wildfire was put out, there was a mudslide on the
hillside. The mudslide and runoff water destroyed the
Stankova house.
Stankova had a homeowner’s policy with Defendant-
Appellee Metropolitan which covered direct loss caused by
fire but excluded coverage for loss caused by either water
damage or earth movement, including mudslides. The policy
provided coverage for “sudden and accidental direct physical
loss or damage” to Stankova’s property if the loss was caused
by the losses in “Section I - Broad Named Perils.” That
section included “Fire or Lightning” as a covered peril.

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 5
The policy also included certain exclusions, described in
“Section I – Losses We Do Not Cover.” That section read as
follows:
SECTION I - LOSSES WE DO NOT COVER
1. We do not insure under any Section I
coverage for any loss which would not have
happened 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;
(b) other causes of the loss; or
(c) whether such causes acted at the same time
or in any other sequence with the excluded
event to produce or contribute to the loss.
These exclusions apply whether or not the
excluded event results in widespread damage
or affects a substantial area. The excluded
events are listed below.
. . . .
D. Water damage, meaning any loss caused
by, resulting from, contributed to or
aggravated by:
[flood, water backups from sewer of drains,
surface water flooding or leakage, etc.]

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 6
This exclusion applies whether or not the
water damage is caused by or results from
human or animal forces or any act of nature.
However, we pay for direct loss that ensues
after water damage if caused by fire, theft, or
explosion, and then we pay for only the
ensuing loss.
E. Earth Movement, meaning any loss caused
by, resulting from, contributed to or
aggravated by events that include, but are not
limited to:
[earthquake, volcanic eruption, sinkhole,
mudslide, erosion, settling or contracting of
earth, etc.]
This exclusion applies whether or not the
earth movement is combined with water or
caused by or results from human or animal
forces or any act of nature.
However, we pay for direct loss that ensues
after earth movement if caused by fire,
explosion other than explosion of a volcano,
theft, or breakage of glass or safety glazing
material and then we pay for only the ensuing
loss.[1]
1 Stankova conceded at argument that the “exception” provisions of
subsections D and E were not applicable to the issues presented here.

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 7
Stankova sought coverage under the homeowner’s policy
first for the destruction of the garage and later for the
destruction of the home. Metropolitan agreed to cover the
loss of the garage but denied coverage for the loss of the
home. Metropolitan informed Stankova that it was denying
coverage because the damage was due to flood water and
earth movement, both of which were explicitly excluded from
coverage under the policy. Stankova contested this
determination, arguing that fire was the actual and proximate
cause of the loss. In its response letter, Metropolitan
reaffirmed its denial of coverage, stating that water and earth
movement, not fire, were the “obvious, immediate and
physical causes” of the damage. Stankova then decided to
bring suit.
Stankova initially filed her complaint in state superior
court. Metropolitan then removed the case to federal court.
The parties conducted only initial discovery. Both parties
then filed cross-motions for summary judgment, each with
supporting statements of facts, most of which were not
controverted. After each party responded and replied to the
other’s motion, the district court granted Metropolitan’s
motion for summary judgment. Stankova now appeals.
“It is well settled that a federal court exercising diversity
jurisdiction must apply substantive state law.” Allstate Ins.
Co. v. Hughes, 358 F.3d 1089, 1094 (9th Cir. 2003) (quoting
Am. Triticale, Inc. v. Nytco Servs., Inc., 664 F.2d 1136, 1141
(9th Cir. 1981)). Accordingly, we apply Arizona substantive
law to this dispute.
The case the parties discuss that is factually closest to this
case is Howell v. State Farm Fire & Cas. Co., 218 Cal. App.
3d 1446 (1990). There, a wildfire occurred near the insured’s

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 8
property in summer; when winter and heavy rains came, a
landslide occurred and damaged the property. The policy at
issue provided coverage for fire damage but not water or
earth movement damage. Id. at 1449–50. The insurer denied
coverage on that basis, and the insured successfully appealed,
with the court holding that the landslide likely would not have
occurred if there had not been a fire, and that therefore the
fire was the “efficient proximate cause” of the loss. Id. at
1451.
By statute, California insurance policies are required to
provide coverage whenever a covered peril is the “proximate
cause” of the loss. Cal. Ins. Code § 530. Case law interprets
“proximate cause” more broadly as “efficient proximate
cause,” or the cause that “sets others in motion” and is “the
predominating or moving efficient cause.” Sabella v. Wisler,
377 P.2d 889, 895 (Cal. 1963). Relying on this case law, in
Howell, the appeals court reversed the trial court’s grant of
summary judgment, holding that a “reasonable juror could
find that the burning of the slope was the ‘predominating
cause’ or the one that set the others in motion.” 218 Cal.
App. 3d at 1460.
Arizona has not adopted the doctrine of “efficient
proximate cause” in deciding issues of causation in insurance
disputes. See Millar v. State Farm Fire & Cas. Co., 804 P.2d
822, 826 (Ariz. Ct. App. 1990) (“We have never adopted the
‘efficient proximate cause’ rule. In Arizona an insurer is
permitted to limit its liability unless to do so would be
inconsistent with public policy.”). However, the underlying
policy coverage issue in Millar was not related to direct loss
caused by fire damage. See id. at 823–24. Nevertheless, the
fact that Arizona has not adopted the efficient proximate
cause doctrine is a principal reason the district court granted

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 9
summary judgment for Metropolitan, so we must look closely
at Arizona law.
Arizona requires, by statute, that all fire insurance
policies conform to a standard policy, which is based on New
York’s standard fire policy of 1943. A.R.S. § 20-1503. If a
policy conflicts with the provisions in the standard policy, the
standard policy provisions govern. See Nangle v. Farmers
Ins. Co. of Arizona, 713 P.3d 1252, 1257 (Ariz. Ct. App.
2003). The standard fire policy states that an insurer will
provide coverage “against all direct loss by fire, lightning and
by removal from premises endangered by the perils insured
against in this policy.” N.Y. Ins. Law § 3404 (emphasis
omitted).
The key question under Arizona law is then whether the
mudslide that damaged Stankova’s house was “directly”
caused by fire. Stankova argues that the mudslide was
directly caused by the fire, and that therefore the damage to
her home is covered under the policy. Metropolitan argues
that Stankova’s insurance policy unambiguously excludes
water damage and earth movement and asserts that the fire
was not a direct cause of the damage to Stankova’s house.2
2 Metropolitan also suggests its policy can be interpreted to exclude
coverage for earth movement and water even if directly caused by fire. If
the policy were so interpreted, it would conflict with the provision of the
standard policy that requires coverage for all direct loss by fire. Arizona
law allows for exceptions to the fire policy if (1) the “loss by fire or other
perils insured against” is caused “directly or indirectly by terrorism,”
A.R.S. § 20-1503, or (2) “such provisions and stipulations are applicable
only to such additional coverage or to the additional peril or perils insured
against,” A.R.S. § 20-1507.

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 10
Because the Arizona standard fire policy is based on New
York’s standard fire policy, we may look to New York law
and treatises for guidance in order to ascertain what “direct”
cause means in the context of a fire insurance policy. In
reference to fire insurance, a New York court has provided:
Loss by fire within the policy’s coverage is
not limited to fire damage; rather, all losses
are covered which are directly, proximately,
or immediately caused by a fire or
combustion. In other words, the damage for
which fire insurers are liable is not confined
to loss by actual burning and consuming, but
they are liable for all losses which are the
immediate consequences of fire or burning, or
for all losses of which fire is the proximate
cause. This follows from the fact that the fair
and reasonable interpretation of a policy of
insurance against loss by fire will include
within the obligation of the insurer every loss
which necessarily follows from the
occurrence of the fire, to the amount of the
actual injury to subject of the risk, whenever
that injury arises directly and immediately
from the peril, or necessarily from incidental
and surrounding circumstances, the operation
and influence of which could not be avoided.
Throgs Neck Bagels, Inc. v. GA Ins. Co. of New York,
671 N.Y.S.2d 66, 69 (App. Div. 1998) (quoting 10A Couch,
Insurance 2d § 42.30).
Both parties cite to a particular treatise on insurance law,
Insurance Law & Practice by John and Jean Appleman

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 11
(1970). The Appleman treatise has been cited in several
Arizona cases as being instructive on the meaning of terms in
insurance policies. The Arizona Court of Appeals cited to the
Appleman treatise in Liristis v. American Family Mutual
Insurance Co., where the court quoted Appleman regarding
the purpose of fire insurance policies: “[f]ire insurance ‘is
intended to cover every loss, damage, or injury proximately
caused by fire, and every loss necessarily following directly
and immediately from such peril or from the surrounding
circumstances, the operation and influence of which could not
be avoided.’” 61 P.3d 22, 27 (Ariz. Ct. App. 2002) (quoting
5 John A. Appleman & Jean Appleman, Insurance Law &
Practice § 3082 (1970)).3
Under the Appleman definition of direct and proximate
cause as adopted by Arizona, it is possible that the fire
directly caused Stankova’s loss in “an unbroken sequence and
connection between” the wildfire and the destruction of the
house. 5 J. Appleman at § 3083. A reasonable factfinder
could conclude that the destruction of the house was caused
by the fire, which likely caused the mudslide, “the operation
and influence of which could not be avoided.” Id. at § 3082.
Thus, although an efficient proximate cause analysis is
not appropriate under Arizona law, we need not apply that
doctrine in order to find that the damage here could have been
3 In Koory v. Western Cas. & Sur. Co., the Supreme Court of Arizona
held that “direct usually means proximate or immediate” in the context of
an insured purchasing insurance against “all direct loss caused by
windstorm.” 737 P.2d 388, 390 (Ariz. 1987) (internal quotation marks
and alternations omitted) (quoting 5 John A. Appleman & Jean Appleman,
Insurance Law & Practice § 3142 (1970)). The court noted that “[i]n
Arizona, as in most jurisdictions, an act or force need not be the sole cause
of damage for causation to exist.” Id. (emphasis added).

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 12
directly and proximately caused by the wildfire. A more
limited analysis reaches the same result. Stankova produced
some evidence that no mudslides or flooding had ever
occurred on that property before, that wildfires commonly
cause mudslides as a result of deforestation and erosion, and
that the rains were not unusually heavy that year. The
damage occurred only about a month after the fire was
contained. Liristis is particularly instructive to us on this
issue. The Liristis court found that mold damage, caused by
water used to extinguish a fire, could be covered under fire
coverage, even though coverage for loss due to mold itself
was excluded under the policy. Id. at 26.
Metropolitan argues that Liristis is distinguishable,
because the covered event (fire) caused the loss (mold); the
excluded event (mold) did not cause a loss to the property.
Applying that argument, Metropolitan asserts that the
excluded event (earth movement) was the cause of the loss.
However, we do not agree with Metropolitan’s argument. In
Liristis, the court found that the fire could have caused the
mold, because the water (used to quash the fire) caused the
mold. Here, Stankova’s evidence suggests that the fire
caused damage to the house (by burning the surrounding
vegetation), because otherwise the water would not have
caused the earth to move.
Metropolitan also suggested at oral argument that because
the exclusion language in the Liristis’s policy varied from the
exclusion language here, Arizona law does not preclude
exclusions from direct loss from fire. We again do not agree
with Metropolitan’s interpretation of Liristis. In Liristis, the
parties raised the coverage issue, in part, based on the policy
language. Id. at 26. The court addressed the coverage issue
as a policy question. Id. The Arizona court did not suggest

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 13
that American Family would have prevailed had the policy
been drafted differently. Id. Rather, it suggested that the
policy (as drafted) did not make any exclusions. Id. Most
importantly, the court’s analysis did not end there. Instead,
the court addressed the policy considerations of the insurance
contract. Id. at 27. It concluded, “The purpose of the
transaction between Plaintiffs and American Family—the
purchase of a homeowners policy which includes fire
insurance—supports interpreting the policy to cover mold
damage caused by fire.” Id.
The purpose of the Liristis policy was the same purpose
as the Stankova policy—to provide coverage for “sudden and
accident direct physical loss.”4 See id. There is no doubt that
Metropolitan attempted to limit its coverage with its anti-
concurrent causation provision (which was not present in
Liristis). However, this provision is inconsistent with
Arizona’s standard fire insurance policy, which insures
against all direct loss by fire. We know of no case that would
allow Metropolitan to contract out of the standard fire
policy’s purpose so as to exclude coverage for this type of
direct loss from fire.
The evidence in the record before us is limited, but the
district court erred in concluding that, under Arizona law, the
insurer was entitled to summary judgment. There is a triable
4 Because the Arizona Court of Appeals found that the policy
considerations and policy language allowed for coverage for direct loss
from fire damage, it did not address the “concurrent causation” issue.
Liristis, 61 P.3d at 28. The resolution of the concurrent causation
language here determines whether the Metropolitan policy conflicts with
the standard fire policy. As previously noted, to the extent that the
Metropolitan policy conflicts with the provisions in the standard policy,
the standard policy provisions govern. See Nangle, 713 P.3d at 1257.

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STANKOVA V. METRO. PROP. & CAS. INS. CO. 14
issue as to whether the fire directly caused the destruction of
Stankova’s home. The district court’s grant of summary
judgment is REVERSED and the case REMANDED for
trial or further proceedings.

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