The California Court of Appeal has upheld a lower court's decision in a case involving homeowners John Linsao and Brian Walters against First American Property & Casualty Insurance Company. The court ruled on August 27, 2026, that First American did not breach its insurance contract when it denied a claim related to significant damage caused by a mudslide. This ruling is significant for homeowners and insurance policyholders as it clarifies the limits of coverage under homeowners' insurance policies.
The case, Linsao v. First American Property & Casualty Ins. Co. (B340746), arose after Linsao and Walters, who jointly own a home in Sherman Oaks, California, filed a lawsuit against First American. They claimed that the insurance company wrongfully denied their claim for damages caused by a mudslide linked to construction on a neighboring property. The homeowners argued that First American breached the insurance contract and acted in bad faith by denying coverage.
The homeowners purchased a comprehensive homeowners insurance policy from First American, which covered direct physical loss to their property, but included several exclusions. The most relevant exclusions in this case were for losses caused by weather conditions, acts or decisions of any person or organization, and inadequate construction. The homeowners also had a separate flood and water damage policy with another insurer.
The dispute began when construction on a nearby property led to significant water damage to the homeowners' residence. During a storm in December 2019, water flowed from the construction site, overwhelming the drainage system of the insured property and causing extensive damage. The homeowners filed a claim with First American, which was initially denied based on the earth movement exclusion in their policy.
After further communication and investigations, First American reopened the claim but ultimately denied it again, stating that multiple exclusions applied, including inadequate construction and earth movement. This led the homeowners to file a lawsuit against First American, alleging breach of contract, bad faith, and fraud.
The court's ruling focused on whether the homeowners' loss fell within the policy exclusions. The court found that the undisputed facts showed that the homeowners' claim was indeed covered by one or more exclusions in their policy. The judge noted, "The undisputed facts show that [the homeowners’] claim falls within one or more coverage exclusions in their [p]olicy," affirming First American's position.
Judge Wendy Chang presided over the case in the Los Angeles County Superior Court, where she granted summary judgment in favor of First American. The court ruled that the homeowners could not establish a triable issue of fact regarding the applicability of the policy exclusions. The court determined that even if the homeowners could argue that the neighbor's complaint about the construction was a contributing factor, it did not negate the fact that the mudslide and inadequate construction were also significant causes of the damage.
This ruling has important implications for homeowners and insurance policyholders. It clarifies that insurance companies can deny claims based on specific policy exclusions, even if there are multiple factors contributing to a loss. The ruling also reinforces the principle that homeowners must understand the terms and exclusions of their insurance policies to avoid disputes in the future.
Looking ahead, this ruling may influence how similar cases are handled in California and potentially set a precedent for future homeowners' insurance disputes. Homeowners may need to be more diligent in understanding the limitations of their coverage, especially when dealing with construction-related damages.
As for the possibility of an appeal, the homeowners have the option to seek further review from the California Supreme Court, but it remains unclear if they will pursue this route. There are no related cases pending that directly connect to this ruling.