The Superior Court of Orange County, California, sustained defendant health care service plan’s demurrers to an intentional infliction of emotional distress claim filed by plaintiffs, a subscriber and her husband, granted summary judgment for the plan on plaintiffs’ claims of breach of contract and the covenant of good faith and fair dealing, and awarded damages to the plan on its cross-complaint for contractual rescission. Plaintiffs appealed. The parties were represented by California business and employment attorney.

Overview

The trial court found plaintiffs’ misrepresentations and omissions justified rescission. The court held that Health & Saf. Code, § 1389.3, precluded a health services plan from rescinding a contract for a material misrepresentation or omission unless the plan could demonstrate the misrepresentation or omission was willful, or it had made reasonable efforts to ensure the subscriber’s application was accurate and complete as part of the precontract underwriting process. Because both issues turned on disputed facts, the trial court’s summary judgment ruling could not stand. Further, a triable issue of facts existed whether the plan engaged in bad faith. The facts raised an inference that the plan might have acted in bad faith by delaying its decision to rescind the policy. Plaintiffs’ complaint sufficiently alleged extreme and outrageous conduct necessary to plead a cause of action for intentional infliction of emotional distress. The facts alleged raised the specter that the plan’s final decision to rescind plaintiffs’ plan might not have come about because of omissions in the application, but because of the substantial medical bills resulting from the husband’s automobile accident.

Outcome

The court reversed the trial court’s judgment.

Procedural Posture

Two days before a scheduled foreclosure sale arising from a construction loan, plaintiff borrower sued defendants, an acquiring bank and a trustee, alleging claims for misrepresentation, breach of contract/promissory estoppel, negligence, violation of Bus. & Prof. Code, § 17200 et seq., declaratory relief, accounting, and reformation. The Marin County Superior Court (California) granted summary judgment for defendants. The borrower appealed.

Overview

The original lender of the loan had gone into receivership with the Federal Deposit Insurance Corporation, and the acquiring bank bought the lender’s assets through a purchase and assumption agreement. The court held that judicial notice was not properly taken of the content of the purchase and assumption agreement. The court found that prolonged communication—perhaps more accurately, miscommunication—about a possible loan modification raised a triable issue of fact of intent by the acquiring bank to profit by misleading the borrower about his loan modification prospects, making summary judgment improper as to the misrepresentation claim. There was also a triable issue of material fact as to a duty of care to the borrower, which potentially made the acquiring bank liable for its own negligence. Because statements by a representative of the acquiring bank could be construed as misstatements of fact, with possible liability for such conduct left to the trier of fact, a triable issue was raised as to the Bus. & Prof. Code, § 17200 et seq., claim. Because the borrower had a fully matured cause of action for money, he had to seek damages, and not pursue a declaratory relief claim.

Outcome

The court affirmed the summary judgment for the trustee. The court also affirmed the summary judgment for the acquiring bank on the causes of action for declaratory relief and accounting, but reversed the summary judgment as to the remaining causes of action against the acquiring bank.