VALENZUELA v. GAB BUSINESS SERVICES (1999)

Raymond Valenzuela and his wife Theresa Valenzuela (collectively Valenzuela, except where Mrs. Valenzuela is referred to separately) brought this action for damages for negligence and intentional infliction of emotional distress, arising out of losses suffered due to allegedly inadequate repairs of subsidence or earthquake damage to their home, and the subsequent loss of the home through repossession on a loan contract by the title holder, defendant state agency California Department of Veterans Affairs (Cal-Vet;  not a party to this appeal).²  The trial court granted summary judgment in this action in favor of defendants and respondents GAB Business Services (GAB), a claims administration firm working for Cal-Vet, and United States Testing Company, Inc., now known as CH & A Corporation (CH & A), an engineering services firm retained by GAB, both of which were involved in processing and investigating Valenzuela's claim for repair monies to Cal-Vet and its fire and hazard insurance program.  (Code Civ. Proc., § 437c.)

Valenzuela appeals, contending the trial court drew erroneous conclusions as to each of the elements of the negligence cause of action, duty, breach, causation and damages.   Valenzuela also argues the trial court erred by holding as a matter of law that the emotional distress they suffered through the loss of their home was, as a matter of law, not severe.

Analyzing the question of duty as a matter of law, we conclude that as to Mr. Valenzuela, based on statute (Mil. & Vet.Code, § 987.50 et seq.) ³ and negligence principles, the trial court erroneously granted summary judgment and triable issues remain as to the issues of breach, causation, and damages.   However, Mrs. Valenzuela was not an original purchaser of the home, nor a holder of a certificate of insurance, and we cannot find a source of a tort duty of care as to her.   Summary judgment was proper as to her personal claims, as will be explained.

Further, reviewing the record de novo “to determine whether the defendant has conclusively negated a necessary element of the plaintiff's case or demonstrated that under no hypothesis is there a material issue of fact that requires the process of trial” (Ann M. v. Pacific Plaza Shopping Center (1993) 6 Cal.4th 666, 673-674, 25 Cal.Rptr.2d 137, 863 P.2d 207 (Ann M.)), we conclude the trial court was justified in ruling that the GAB/CH & A showings with respect to the intentional infliction of emotional distress causes of action were adequate to entitle them to summary judgment.   Valenzuela failed to defeat the summary adjudication motion by failing to establish he suffered “emotional distress of such substantial quantity or enduring quality that no reasonable [person] in a civilized society should be expected to endure it.”   (Fletcher v. Western National Life Ins. Co. (1970) 10 Cal.App.3d 376, 396-397, 89 Cal.Rptr. 78.)   We reverse with directions regarding appropriate further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND

In 1979, Mr. Valenzuela bought a Chula Vista house through Cal-Vet's Farm and Home Loan Purchase program. (§ 987.50 et seq.)   Cal-Vet buys homes and sells them to eligible veterans through a long-term installment contract, under which it retains legal title to the property until the veteran has paid the purchase price in full.   Cal-Vet has a duty under sections 987.54 and 987.74 to ensure that all properties it purchases and then resells to veterans is covered by insurance against fire and other hazards.   Cal-Vet has such a master insurance policy with million-dollar deductibles, issued by various insurers.   This fire and hazard insurance policy excludes damage that occurs from normal settlement and earthquake.   Separate equally huge deductibles are stated for losses caused by abnormal settling under the property.   Effectively, this arrangement means that Cal-Vet is self-insured for covered losses up to the stated deductibles.

Cal-Vet requires purchasers such as Mr. Valenzuela to pay for a certificate of insurance on the house under the master insurance policy.   The policy insures the interests of both Cal-Vet and purchasers, such as Valenzuela, who have entered into a sales contract and have been issued a certificate of insurance.   Losses are payable according to the respective interests of Cal-Vet and the purchaser. (§ 987.74.) Cal-Vet also requires the buyer to make payments to a separate disaster indemnity program which pays for earthquake damage. (§ 989.4 et seq.)   Mr. Valenzuela got married after buying the house and Mrs. Valenzuela is not a party to the purchase contract nor to the certificate of insurance.

Cal-Vet pays GAB a fee for service for administering and adjusting all claims of loss submitted under the insurance program.   In 1990, after the Valenzuela property suffered some unusual settlement damage, Valenzuela contacted GAB to submit a claim for damage to his home, i.e., wall and ceiling cracks, doors and windows that did not close, and separation of the house from its foundation.   GAB assigned the claim to an adjuster, who inspected the property and recommended that a soils engineer conduct tests to determine the exact cause of damage, which might be abnormal settlement.

A series of geotechnical evaluations by soils engineers then took place from March 1990 through August 1991, each reaching different results.   GAB hired the first engineer, Garrett Engineers, Inc., who concluded earthquake damage had occurred;  GAB then instructed Valenzuela to contact Cal-Vet's disaster indemnity department for coverage.

Cal-Vet hired the second engineer, Ed Kaya, who found the cause of loss was not earthquake but a soils problem (potentially covered by the fire and hazard program).   The claim was returned to GAB for adjustment.

GAB hired a third engineering firm, respondents CH & A, which concluded that the damage to the home was caused by earthquake (excluded), although other contradictory findings were also contained in the report, permitting a conclusion that abnormal settlement had occurred (covered damage).   The report contained the following language to support its recommendation for an earthquake repair:  “Earthquake repair is straightforward;  fix what is broken.   Settlement repair requires much more investigation and produces much higher engineering fees and repair costs.”   The report then goes on to state that a number of contractors and engineers would differ on the cause of the damage, as settlement was not an unreasonable possibility in this case, since earthquake damage is not all that common in San Diego.   The report further discusses whether the other reports in this case represent efforts to obtain excessive fees.   When it received this report, GAB told CH & A to remove the inflammatory language from the report and send a revised report to Cal-Vet.  Both versions are in the record.   Kaya was not given the full report.   GAB returned the claim to Cal-Vet for earthquake coverage.

In February 1992, Cal-Vet returned the claim to GAB, on the basis that the cause of damage was not earthquake.   In June 1992, GAB asked CH & A what its position would be in litigation as to how an earthquake could have caused the amount of damage to the home that had been found.   GAB returned the claim to Cal-Vet.   On December 1, 1992, Cal-Vet instructed GAB to cover the claim in the amount of $62,900.   It did so to protect its interest in the property and to protect the veteran's interest.   In consideration of this sum, Valenzuela signed a release applicable to “Property Damage Only By Earth Movement.”

In 1993, pursuant to the coverage decision, Valenzuela found a contractor in the telephone book, Azar Construction, Inc., and signed a contract with it to perform certain work for $24,710, to be funded by Cal-Vet.   At GAB's instructions, the contractor contacted CH & A for repair specifications, and was told to do an earthquake repair.   According to Peter Azar's responses to requests for admissions, the scope of the work was developed, at least in part, by CH & A. However, Azar's declaration states that before he submitted his bid to Valenzuela, Valenzuela requested him to review various reports and letters, including those from CH & A. Valenzuela required Azar to keep the written description of his work within the description of the CH & A reports.   Azar states that he neither sought nor received any instructions from GAB, Cal-Vet, or anyone except Valenzuela.

In June 1993, the Valenzuelas moved to a rental unit while the work was going on.   By late 1993, Azar's work had left the house uninhabitable (lifting house off foundation, damaging upper level).   Valenzuela then contacted GAB to complain that the foundation had not been repaired and the upper structure of the house had been damaged.   When GAB refused to do any further repairs to the foundation, Valenzuela told them he was going to seek refinancing to get the foundation repaired correctly.

Valenzuela hired another engineer to evaluate the foundation.   Cal-Vet removed GAB from the claims administration process and assisted Valenzuela with the subsequent repairs, which included some additional remodeling.⁴  However, there was not enough money left from the Cal-Vet coverage amount to complete the job as Valenzuela planned it, his attempts to obtain refinancing failed due to the condition of the house, and he could no longer make payments on the house.   Cal-Vet then cancelled the installment contract and repossessed the house.

The Valenzuelas then brought this action against Cal-Vet and Azar, the contractor who performed the original repairs, and against GAB and CH & A. The operative pleading is the third amended complaint, which alleges negligence and intentional infliction of emotional distress against GAB and CH & A.⁵

GAB and CH & A filed motions for summary judgment or summary adjudication of issues (as to the individual causes of action), arguing they could establish a lack of any duty toward plaintiffs, and plaintiffs could not show breach or causation, nor that they had suffered severe emotional distress.   GAB and CH & A made a number of evidentiary objections to the opposition showing.

 The trial court granted summary judgment, relying mostly on a lack of significant opposition to GAB's and CH & A's showing that there was no causation of injury through their acts.   Also, Valenzuela's showing of emotional distress was found to fall short of the necessary severity for any recovery.   The ruling found no basis for denial of the motion based on any further evidence that plaintiffs might be able to obtain.   However, no specific ruling on the defense evidentiary objections was made, except in part as to the emotional distress evidence.⁶  Judgment was entered in favor of defendants and Valenzuela appeals.

DISCUSSION

These standards apply on review of this summary judgment for defendants:

“An action in negligence requires a showing that the defendant owed the plaintiff a legal duty, that the defendant breached the duty, and that the breach was a proximate or legal cause of injuries suffered by the plaintiff.  [Citations.]   On review of a summary judgment in favor of the defendant, we review the record de novo to determine whether the defendant has conclusively negated a necessary element of the plaintiff's case or demonstrated that under no hypothesis is there a material issue of fact that requires the process of trial.  [Citation.]”  (Ann M., supra, 6 Cal.4th at pp. 673-674, 25 Cal.Rptr.2d 137, 863 P.2d 207.)

In Hagen v. Hickenbottom (1995) 41 Cal.App.4th 168, 183-186, 48 Cal.Rptr.2d 197, the court further explained that a moving defendant may not be deemed to make an adequate showing of entitlement to summary judgment, thus shifting the burden of making a prima facie factual case in support of the complaint to the plaintiff, “simply by suggesting the possibility that the plaintiff cannot prove its case.”   Rather,

“[i]t is clear to us, from the requirement of the 1992 amendment that a defendant have ‘shown that one or more elements of the cause of action ․ cannot be established’ (Code Civ. Proc., § 437c, former subd. (n)(2);  Stats.1992, ch. 1348, § 1), that a defendant must make an affirmative showing in support of his or her motion.   Such a showing connotes something significantly more than simply ‘pointing out to the ․ court’ that ‘there is an absence of evidence’:  before the burden of producing even a prima facie case should be shifted to the plaintiff in advance of trial, a defendant who cannot negate an element of the plaintiff's case should be required to produce direct or circumstantial evidence that the plaintiff not only does not have but cannot reasonably expect to obtain a prima facie case.”  (Hagen v. Hickenbottom, supra, 41 Cal.App.4th at p. 186, 48 Cal.Rptr.2d 197, italics omitted.)

Such an approach does not assume that the plaintiff's case will necessarily prove meritorious.  (Hagen v. Hickenbottom, supra, 41 Cal.App.4th at p. 187, 48 Cal.Rptr.2d 197.)   However, Code of Civil Procedure section 437c requires the courts “to distinguish between a case which is simply weak and a case which ‘cannot be established.’ ”  (Hagen v. Hickenbottom, supra, at p. 188, 48 Cal.Rptr.2d 197.)   With these rules in mind, we turn to the duty question, then the remaining elements of negligence as presented by this record and, finally, the emotional distress issues.

I

Duty

 Generally, the existence of a duty is a question of law for the court.  “Accordingly, we determine de novo the existence and scope of the duty owed by [defendant] to [plaintiff].”  (Ann M., supra, 6 Cal.4th at p. 674, 25 Cal.Rptr.2d 137, 863 P.2d 207.)  “In this, as in other areas of tort law, foreseeability is a crucial factor in determining the existence of duty.  [Citations.]”  (Id. at pp. 676-677, 25 Cal.Rptr.2d 137, 863 P.2d 207.)   “Foreseeability, when analyzed to determine the existence or scope of a duty, is a question of law to be decided by the court.  [Citations.]”  (Id. at p. 678, 25 Cal.Rptr.2d 137, 863 P.2d 207.)   In ruling on a duty question, “the scope of the duty is determined in part by balancing the foreseeability of the harm against the burden of the duty to be imposed.  [Citation.]”  (Ibid.)

 A particular civil wrong may be made actionable by common law (e.g., battery, false imprisonment or negligence), or by statute, as in the case of sexual harassment.  (Bihun v. AT&T Information Systems, Inc. (1993) 13 Cal.App.4th 976, 1002, 16 Cal.Rptr.2d 787, disapproved on another point in Lakin v. Watkins Associated Industries (1993) 6 Cal.4th 644, 662-664, 25 Cal.Rptr.2d 109, 863 P.2d 179.)  “ ‘[T]he word “tort” means a civil wrong, other than a breach of contract, for which the law will provide a remedy in the form of an action for damages.’  [Citation.]  ‘It is well settled the Legislature possesses a broad authority ․ to establish ․ tort causes of action.’  [Citation.]   Examples of statutory torts are plentiful in California law.  [Citations.]”  (Bihun v. AT&T Information Systems, Inc., supra, at p. 1002, 16 Cal.Rptr.2d 787.)

As a first step in analyzing the validity of the trial court's ruling on the negligence issues as to both GAB and CH & A, we set it forth in full.   The ruling must be read in acknowledgement of the basic rule that a trial court ruling is evaluated in terms of its ultimate correctness, not the correctness of the specific reasons given by the court in support of the ruling.   (D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 19, 112 Cal.Rptr. 786, 520 P.2d 10.)   The trial court stated:

“With respect to Plaintiff's negligence claims, it is undisputed that GAB paid all amounts due on Plaintiff's property damage claim and that Mr. Valenzuela signed a release as to those claims [ ]. Mr. Valenzuela stated in his deposition that he lost his home as a result of [Azar's] faulty work, and Great Western's failure to fund the refinancing loan it had previously promised [ ]. It is also undisputed that GAB neither hired [Azar], nor had any responsibility to supervise or monitor its work [ ];  Plaintiffs never even informed GAB of its intent to seek a loan from Great Western [ ]. The basis for liability on the part of Defendant CH & A is even more attenuated.   Thus, Defendants have met their burden as the moving party to show that a necessary element of their negligence claim, causation, cannot be established.   Although Plaintiffs purport to dispute the above facts in their opposing separate statement, the evidence offered in support failed to raise a triable issue as to any of these facts.” 7

Although the trial court focused largely on a perceived lack of causation, the ruling also evidently assumes a lack of duty on the part of GAB and CH & A. In any case, we are to determine de novo the existence and scope of the duties owed by defendants to plaintiffs.   We first consider the statutory scheme of Cal-Vet's home ownership program for veterans, and then apply it to the facts presented by this record.

Section 987.50 et seq. sets forth the Veterans' Farm and Home Purchase Act of 1974.   Under section 987.54, “[t]he administration of the provisions of this article is vested solely in the Department of Veterans Affairs [Cal-Vet].”  Cal-Vet has the duty under section 987.74 to ensure that all properties it purchases and then resells to veterans shall be covered by insurance, including insurance against fire and other hazards.   Under section 987.76, Cal-Vet is to be the sole judge of the legality of charges and of amounts due, including insurance premiums and the amount of insurance to be placed upon the buildings and improvements on the land, and of “[t]he necessity and nature of the work required to keep the buildings, fences, and other improvements in good order and repair, and the amount to be paid therefor.” (§ 987.76, subd. (c).)

Cal-Vet maintains a fire and hazard insurance program by requiring purchasers such as Mr. Valenzuela to pay for a certificate of insurance on the house under the master insurance policy, which insures the interests of both Cal-Vet and the purchaser.   Within the large deductibles specified, Cal-Vet effectively functions as a self-insured entity.   Cal-Vet also maintains its Disaster Indemnity program (covering earthquake damage).   It further holds an interest in the property as a seller to the veteran, Valenzuela, under an installment contract, and retained title to the property.   Because any landowner is required to maintain land in its possession and control in a reasonably safe condition (Civ.Code, § 1714;  Ann M., supra, 6 Cal.4th at p. 674, 25 Cal.Rptr.2d 137, 863 P.2d 207), Cal-Vet has an interest in preserving the property in a safe and marketable condition.

Once the claim of property damage was made, Cal-Vet retained GAB to perform claim administration functions, and GAB hired CH & A to investigate the claim of damage to the property.   Essentially, through their negligence causes of action against GAB and CH & A, the Valenzuelas are seeking recovery for a breach of a duty of due care in performing those respective professional functions.   They argue these entities each undertook a legal duty to abstain from causing injury to the couple's interests, based not only on their status as agents for Cal-Vet in processing the claim, but also based on their own acts.

 As a threshold matter, we first conclude the trial court acted correctly as a matter of law in granting summary judgment against Mrs. Valenzuela.   She had no contractual relationship as a buyer from Cal-Vet or as an insured under its programs, nor has it been shown she dealt individually with either GAB or CH & A. In her reply brief, she contends that she was a foreseeable victim of the negligence of these two entities, within the standards of Molien v. Kaiser Foundation Hospitals (1980) 27 Cal.3d 916, 923, 167 Cal.Rptr. 831, 616 P.2d 813.   However, this stretches the limits of the Molien authority too far.  (See Huggins v. Longs Drug Stores California, Inc. (1993) 6 Cal.4th 124, 130-133, 24 Cal.Rptr.2d 587, 862 P.2d 148.)   We can find no basis for Mrs. Valenzuela to sue GAB and CH & A.

 Turning to the relationship of Valenzuela and Cal-Vet, Cal-Vet played many parts:  (1) The seller of his property;  (2) a co-owner of his property interest;  (3) his co-insured, as well as (4) the party who played the role of his self-insurer and who hired GAB and CH & A to perform claim administration functions and to investigate the cause of loss.   Eventually, Cal-Vet told GAB to cover the loss.   Thus, our inquiry is whether Cal-Vet's relationship with GAB and CH & A gives rise to a duty of care on their part as to Valenzuela himself, either on an agency theory or directly.   We agree with Valenzuela's statement in his reply brief that the CH & A position on duty rises or falls solely on the strength of the GAB position.   Both were integrally involved in processing the Valenzuela claim and both had knowledge of Valenzuela's status as the named property owner who was making the claim.   Accordingly, we discuss the concept of duty as to both entities together.

GAB and CH & A take the position that GAB was acting as an independent insurance adjuster whose loyalties were owed primarily to Cal-Vet as the acting insurer.   Case authority has held that an insured cannot be considered a third party beneficiary of a contract between its insurer and the independent claims adjuster.  (Henry v. Associated Indemnity Corp. (1990) 217 Cal.App.3d 1405, 1417, 266 Cal.Rptr. 578;  Thompson v. Cannon (1990) 224 Cal.App.3d 1413, 1417, 274 Cal.Rptr. 608.)   GAB and CH & A thus argue that any duties they owed were owed only to Cal-Vet and not to Valenzuela, and the fact that Cal-Vet hired GAB did not create any added rights on the part of Valenzuela in the negligence context.   GAB and CH & A fear that they would have conflicting duties if they owe any duties to Valenzuela at all.

We believe that in this unique factual context, GAB and CH & A owed a duty of care to the property owners, the individual Mr. Valenzuela and to Cal-Vet, to carry out their respective professional functions of claims administration and claims investigation in a timely and prudent manner.   Effectively, these parties were charged with carrying out the insurance/self-insurance policy provisions of determining whether a covered loss had occurred, and this duty was owed not only to Cal-Vet as holder of an interest in the property and as a self-insurer, but also to Valenzuela, the named owner who made a claim.   Both parties with an interest in the property have an interest in its proper upkeep, and there is no conflict in that respect.   It was equally foreseeable that both co-owners would suffer damage if the claims administrative and investigative processes were not properly performed.  (Ann M., supra, 6 Cal.4th at pp. 677-678, 25 Cal.Rptr.2d 137, 863 P.2d 207.)

We find a source for these duties not only in the insurance arrangement that the parties had, but also in the statutory functions conferred upon Cal-Vet by the Military and Veterans Code, sections 987.54 and 987.74, imposing a duty on Cal-Vet to ensure that all properties it purchases and then resells to veterans shall be covered by insurance, including insurance against fire and other hazards.   As noted above, under section 987.76, Cal-Vet is to be the sole judge of “[t]he necessity and nature of the work required to keep the buildings, fences, and other improvements in good order and repair, and the amount to be paid therefor.” (§ 987.76, subd. (c).)  Those sections require Cal-Vet to ensure that the subject property is preserved in a marketable condition;  adequate claims processing under the scheme that Cal-Vet has chosen serves that interest, which is also common to Valenzuela.

These unique facts remove Valenzuela from the position of an outsider who is seeking to impose a tort duty on parties with whom he has no significant relationship.  (See, e.g., Younan v. Equifax Inc. (1980) 111 Cal.App.3d 498, 516-517, 169 Cal.Rptr. 478.)   Rather, under all the circumstances, Valenzuela can assert the existence of a duty of care toward him on the part of GAB and CH & A to administer and investigate his claim in a manner that does not adversely affect his property rights.   The summary judgment must be reversed on this basis as to Mr. Valenzuela.

II-III**

DISPOSITION

The judgment is reversed in part, with the trial court directed to enter a new order denying summary judgment or adjudication as to the negligence causes of action brought by Raymond Valenzuela only.   The balance of the judgment is affirmed.   Each party is to bear its own costs.

FOOTNOTES

2.   Cal-Vet brought a separate motion for summary judgment which the trial court granted as to Mrs. Valenzuela but denied at that time as to Mr. Valenzuela.   The record does not show the eventual disposition of that motion but it makes no difference to the issues here.

3.   All further statutory references are to the Military and Veterans Code unless otherwise specified.

4.   The parties dispute whether the remodeling was excessive or fell within the scope of necessary repairs.

5.   A copy of Valenzuela's third amended complaint has been provided to the record by augmentation, after several preliminary procedural skirmishes over its nonappearance in the record.

6.   Where the trial court ruling does not reveal a decision on the evidentiary objections on file, we follow the approach of the Supreme Court in Ann M., supra, 6 Cal.4th at page 670, footnote 1, 25 Cal.Rptr.2d 137, 863 P.2d 207:  “Because counsel failed to obtain rulings, the objections are waived and are not preserved for appeal.  [Citations.]   Although many of the objections appear meritorious, for purposes of this appeal we must view the objectionable evidence as having been admitted in evidence and therefore as part of the record.”   This rule applies to the negligence evidence;  however, a ruling was obtained in part as to the emotional distress evidence, as will be discussed in the nonpublished portion of the opinion.

7.   Valenzuela first objects that, to the extent the trial court relied on the release provision, there was error because the parties had not briefed that issue.   We need not reach this point as the ruling is incorrect for other reasons, as we explain.

FOOTNOTE.   See footnote 1, ante.

HUFFMAN, Acting P.J.

NARES, J., and HALLER, J., concur.