Hindsight: 100 Years Ago

by Robert A. James and Thomas L. Libby

In December 1910, in a case that has sent aftershocks into the 21st century, the California Supreme Court held that damage to a wine business after the great 1906 San Francisco earthquake and fire was caused by the blaze and not by the temblor itself (California Wine Association v. Commercial Union Fire Ins. Co. of New York, 159 Cal. 49 (1910)). Though the finding seems mundane, the trial courts had been barraged with post-quake lawsuits between property owners and insurance companies over the finer points of seismic shaking (which the policies didn't cover) and fire-related fiascos (which they did). The pivotal California Wine decision upheld a 1908 trial court verdict in favor of the insured.

The plaintiff's attorney - Alfred Sutro of Pillsbury, Madison & Sutro (now Pillsbury Winthrop Shaw Pittman) - established the concept of "ensuing loss" when he convinced first a state and then a federal jury that the damage was caused by fires that were legally distinguishable from the quake.

Hours after the earth shook that April morning, for example, someone making a stovetop breakfast sent sparks through a cracked chimney, igniting what has become known as the Ham and Eggs Fire. The blaze spread toward several buildings, including San Francisco City Hall.

Ensuing loss remains a vital issue in insurance cases today, arising any time an insured event, such as wind or fire, is preceded by uninsured perils, like an earthquake or flood. The argument has been invoked after such calamities as Hurricane Katrina, the Northridge Quake, and Mount St. Helens volcanic activity.

---