A California appeals court has affirmed an insurer's denial of a homeowners claim after a half-built retaining wall sent hillside mudslide into a neighboring house. 

The property, in Sherman Oaks, sits at the bottom of a steep ravine. In 2019, a construction company was building a large residence on the lot above and, as part of the project, constructing a retaining wall along the road's downslope edge. A neighbor complained to the City of Los Angeles about the wall's appearance, and the city asked the builder to pause – though it never issued a formal stop order. At that point, roughly 15 feet of the wall was still just drilled holes and rebar in the ground. 

When a December 2019 rainstorm hit, water channeled along the finished section, poured off the unfinished end, and ran straight into the homeowners' property. Mud and debris flooded the backyard, cracked the rear retaining wall, and seeped into the house. The damage made the home uninhabitable. 

The homeowners claimed under their all-risk policy with First American Property & Casualty Insurance Company. After an initial denial, multiple company employees told one of the homeowners — himself a lawyer with insurance industry experience – that coverage had been approved and damage estimates of roughly $386,000 were on file. One adjuster called it "a done deal." 

Days later, the insurer reversed course. An executive wrote that the company was "unable to affirm coverage," and outside counsel said the employees who discussed coverage "say they were misquoted." First American formally denied the claim in July 2020, citing four excluded perils: earth movement, water, third-party negligence, and weather. The incomplete wall, the insurer said, amounted to excluded inadequate construction. 

The homeowners sued, alleging breach of contract, bad faith, emotional distress, and fraud. The trial court granted summary judgment for the insurer. In an opinion filed August 27, 2026, and certified for publication on September 23, 2026, the Second Appellate District affirmed. 

The court held it did not matter which event a jury might pick as the dominant cause – every candidate triggered an exclusion. Applying the plain dictionary meaning of "inadequate," the court reasoned a wall missing 15 feet of construction simply cannot function as a retaining wall, regardless of why construction stopped. 

On the homeowners' estoppel argument, the court accepted a triable question existed over whether the coverage promises were made and relied upon – but held estoppel cannot create coverage that does not exist under a policy. The court also held that bad faith investigation claims do not survive absent a covered loss. 

For claims teams and coverage counsel, the case reinforces that when every plausible cause of loss is excluded, the claims-handling conversation will not rewrite the policy.