John Linsao and Brian Walters owned a home in Sherman Oaks at the bottom of a ravine below a steep hillside. They had an all-risk homeowners policy from First American Property & Casualty Insurance Company and a separate flood and mud policy from another carrier. The First American policy excluded loss caused by weather conditions, earth movement such as mudslides, acts or decisions of any person or government body, and faulty, inadequate, or defective planning, design, workmanship, or construction, whether on or off the insured premises.
In 2019 a contractor, Melt Construction, was building a large house on an upslope lot. The City of Los Angeles approved plans requiring Melt to build a retaining wall along the road. A neighbor complained about how the wall would look. The City then asked Melt to pause work on the wall while design changes were considered, although it never issued a formal stop order. When work stopped, about 15 feet of the wall had not been built. That section consisted only of drilled caisson holes with rebar in them.
In December 2019 a rainstorm hit while construction was still paused. Melt placed about 75 sandbags at the unfinished end of the wall. Runoff ran along the wall to its open end and cut a gully directly toward the rear of the insured home. The water overwhelmed the home’s drainage, cracked the home’s own retaining wall, and pushed water, mud, and debris into the house. The damage made the home uninhabitable.
First American denied the claim in January 2020 under the earth movement exclusion. Linsao is a lawyer with insurance industry experience, and he argued that Melt’s negligence was the cause of the loss. First American then reopened the claim. According to evidence the homeowners submitted, several First American employees told Linsao in June 2020 that the loss was covered. The insurer also issued a $20,000 advance for living expenses. Within days, however, a claims vice president and outside counsel wrote that coverage had not been confirmed. In early July, Linsao took out a $200,000 loan to pay for repairs and living expenses. On July 24, 2020, First American issued a final denial. It concluded that earth movement, water, third-party negligence, and weather, all excluded perils, had combined to cause the loss.
The homeowners and two family members sued First American for breach of contract, breach of the implied covenant of good faith and fair dealing, intentional infliction of emotional distress, and fraud. The fraud claim was based on First American’s website, which marketed the policy as comprehensive while recommending separate flood coverage. The plaintiffs also sued the City, Melt, and others in a separate action, and they later settled with the other insurers.
The trial court granted First American’s motion for summary judgment. It rejected the estoppel argument and held that the undisputed facts brought the loss within one or more exclusions, focusing mainly on the inadequate construction exclusion. It held that the contract, implied covenant, and emotional distress claims failed because there was no coverage. It also found that the evidence did not support several elements of the fraud claim.
In the Published Case of Linsao v. First American Property & Casualty Insurance Company, Case No. B340746 (September, 2026). The Court of Appeal affirmed the summary judgment in full and awarded First American its costs on appeal. The California Court of Appeal filed this opinion as unpublished on August 27, 2026, and then certified it for publication on September 23, 2026, so it is now citable precedent
The panel first addressed efficient proximate cause. Under State Farm Fire & Casualty Co. v. Von Der Lieth (1991) 54 Cal.3d 1123, a loss caused by a combination of covered and excluded perils is covered if a covered peril was the predominant cause. The homeowners argued that a jury could still decide which cause predominated. The court held that a factual dispute over which cause predominated does not defeat summary judgment when every possible predominant cause is excluded, following Brodkin v. State Farm Fire & Casualty Co. (1989) 217 Cal.App.3d 210.
The court identified four candidate causes: the storm, the mudslide, Melt’s construction activity, and the neighbor’s complaint. The homeowners did not argue on appeal that the storm or the mudslide was a covered cause. The court held that the neighbor’s complaint could not be the efficient proximate cause as a matter of law. The complaint was at most a “but for” cause that started a chain of events. It could not have damaged the home on its own, and treating it as a separate peril merely recharacterized Melt’s conduct.
On Melt’s conduct, the court read “inadequate” according to its ordinary dictionary meaning: insufficient or not capable of serving its purpose. Relying on Wilson v. Farmers Ins. Exchange (2002) 102 Cal.App.4th 1171, which held that an unfinished home renovation was plainly inadequate construction, the court concluded that a retaining wall missing a 15-foot section cannot function as a retaining wall. The homeowners argued that Melt paused at the City’s request and was not at fault. The court rejected that argument because the exclusion requires only inadequacy, not negligence or blame. Because the exclusion is not ambiguous, the rule that ambiguous exclusions are construed against the insurer did not apply. The court also noted that nothing requires a homeowners policy to cover risks created by an unfinished construction project on neighboring property.
Next, the court rejected the estoppel argument. It agreed that the evidence raised a triable issue about whether First American’s employees told the homeowners the loss was covered and whether the homeowners relied on those statements. Even so, the court held that estoppel cannot create coverage that the policy does not provide. The homeowners relied on Tomerlin v. Canadian Indemnity Co. (1964) 61 Cal.2d 638 and Miller v. Elite Ins. Co. (1980) 100 Cal.App.3d 739. The court explained that those were liability insurance cases in which the insured gave up alternative ways of defending or resolving a lawsuit because of the insurer’s conduct. It noted that Dollinger DeAnza Associates v. Chicago Title Ins. Co. (2011) 199 Cal.App.4th 1132 had limited that exception to liability insurers. The panel did not decide whether the exception could ever reach first-party coverage, because these homeowners gave up no alternatives. They pursued both a flood claim and a lawsuit against Melt and others. At most, the loan might support a claim for the cost of borrowing under promissory estoppel, a theory the homeowners had expressly disclaimed.
The court then held that bad faith in the investigation of a claim that is not covered is not actionable. Under Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, the implied covenant has no independent existence apart from the contract benefits due. The court expressly adopted Benavides v. State Farm General Ins. Co. (2006) 136 Cal.App.4th 1241, holding that without coverage there is no tort liability for how a first-party claim was investigated, whether the theory is framed as breach of the implied covenant or as emotional distress. It declined to follow dicta in earlier cases suggesting that an insurer might sometimes be liable for bad faith even without coverage.
Finally, the court affirmed summary judgment on the fraud claim. The website accurately described the range of coverage First American generally offers and said nothing about the terms of the plaintiffs’ particular policy. In addition, no reasonable insured could rely on general marketing statements over the express terms of the policy they purchased.