If you read the applicable section of the code:
http://www.dmv.ca.gov/pubs/vctop/d11/vc21202.htm
what is interesting is that it is written in a way that easily allows a casual reader to believe that it means exactly the opposite of what it means -- that cyclists do need to stay out of the way of cars. In that way it is similar to many states; I believe the "as close as practicable" language comes from the model uniform traffic code. My suspicion is that it was written that way to get legislators to vote for something that was the opposite of what they were really voting for!
Anyway, this episode, while sad, is an opportunity for advocacy -- cool, reasoned advocacy.