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I think you'll find that most of the mudslide losses are not covered by insurance. If you take a look at your homeowner's insurance, you'll probably find an exclusion against loss due to "earth movement". In other words, earthquakes, landslides and mudslides. In most parts of the country, this is no big deal, but in California the probability of having your house damaged by earth movement is pretty good. So you need special earthquake insurance. But guess what: the insurance is so expensive, the deductible is so high, and the exclusions are so many that it's basically worthless. Many homeowners skip it. And if you have a house in a known mudslide area, it's going to be really expensive. As for why anyone would build in these areas, note that any decent land in So. Cal. is going to be outrageously expense. So if someone can get a building permit on a piece of land, you can bet they'll build on it. This sort of lunacy isn't limited to California. Just take a look at the whole east coast of the US. Practically every foot of beachfront has a house on it, even though nor'easters and hurricanes can wipe them out overnight. If you let someone build someplace they shouldn't, they will.
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