Brown v. Department of Veterans Affairs

The Department renegotiates its master agreement every five years. In 1960 the Department changed its procedure from entering into multiple master agreements to maintaining only one master agreement. Thereafter the Department entered into one agreement with the company that would provide the best coverage at the lowest rate and all Cal-Vet purchasers were required to maintain insurance under the master policy. Payments were made to the Department with the monthly contract payments, and the Department would forward the premiums to the insurer. The amount of insurance on Cal-Vet properties was increased each year in accordance with replacement cost factors obtained from the Marshall and Swift reporting service. This service reports the annual increase in replacement costs for various geographic areas in California, and the insurance on a Cal-Vet property would be automatically increased in accordance with those figures. The veteran is provided with an annual statement showing the amount of insurance maintained on the property through the master agreement. Additionally, when an insurance policy is up for renewal the Department includes an insert with the veteran’s monthly contract statement advising that replacement costs are rising, and that additions or improvements would further increase the veteran’s insurance needs, and advising the veteran to consider whether additional insurance is required. The veteran is provided with a postcard upon which he may indicate the amount of insurance coverage he desires.

In 1970, the plaintiffs desired to remodel and add a bathroom to their home. Plaintiffs’ Cal-Vet contract required them to obtain the Department’s approval for improvements or additions to the home. Plaintiffs applied for and received written consent to improve their home with their own funds. The improvement of the bathroom added approximately 55 square feet to the home. In applying for the Department’s consent the plaintiffs were required to complete a written form which contained questions regarding insurance coverage. Plaintiffs checked a box which stated “Do not increase fire insurance coverage,” to which Mrs. Brown added “at this time.”

On the evening of July 13, 1978, a fire started in the plaintiffs’ garage and spread to the house. The fire caused substantial damage to plaintiffs’ home and, although the estimates of the extent of the damage were conflicting, the evidence supports the jury finding that the home was damaged to the extent of $69,757.29. Likewise, the evidence was conflicting on the question of the amount for which the house should have been insured, but it is clear that the insurance of $34,000 was very inadequate.

Plaintiffs brought an action against the Department. Their theory was that pursuant to the Military and Veterans Code, the Department was under a duty to insure the property for full replacement value, or to advise the plaintiffs to increase their insurance and that the Department was negligent in failing to do so. The jury returned a special verdict finding that both the Department and the plaintiffs were negligent and that the negligence of each were proximate causes of plaintiffs’ damages. Plaintiffs were determined to have been 35.22 percent negligent, and the Department was found to have been 64.78 percent negligent. Plaintiffs’ damages were found to be $69,757.29, “which includes the $34,000 paid.” The trial court entered judgment in favor of the plaintiffs awarding them 64.78 percent of the total fire loss, less the $34,000 paid by their insurance company, for a total judgment of $11,188.77. Plaintiffs were awarded 64.78 percent of their costs. Both sides appeal.

Discussion

Whenever a tort claim is made against a governmental agency the concept of governmental immunity arises. The question of immunity, however, should not be addressed until it is first determined that the defendant owed a duty of care to the plaintiffs. (Williams v. State of California (1983)

Initially, we note that, in the absence of a statutory enactment specifically imposing a duty on the Department with regard to insurance, it is perfectly clear that the Department owed no duty to plaintiffs. Installment sale contracts, whereby the seller of land retains title as security, have long been used in California. Although early judicial decisions were unclear as to who should bear the risk of loss, it is now firmly established that unless the contract provides otherwise the risk of loss passes to the buyer when he obtains either title to or possession of the premises. (Civ. Code, § 1662.) While the buyer is in possession and the seller retains title for security, both parties have insurable interests in the property and either or both may obtain insurance. (White v. Gilman (1903) 138 Cal. 375 , 377 [ 71 P. 436 ]; Greco v. Oregon Mut. Fire Ins. Co. (1961) 191 Cal.App.2d 674 , 686 [ 12 Cal.Rptr. 802 ].) But in the absence of a contractual provision requiring a party to obtain and maintain insurance neither party has an obligation to the other to insure the property. (White v. Gilman, supra, 138 Cal. at p. 377.) The Cal-Vet contract in this case imposed upon the plaintiffs the duty to obtain and maintain insurance on the property. Under such circumstances, unless the provisions of the Military and Veterans Code can be construed as imposing a duty on the Department, the plaintiffs can make no claim against the Department based upon their own failure to adequately insure their interest. (Long v. Keller (1980) 104 Cal.App.3d 312 , 317-320 [ 163 Cal.Rptr. 532 ], See also Russell v. Williams (1962) 58 Cal.2d 487 , 491-492 [ 24 Cal.Rptr. 859 , 374 P.2d 827 ].)

Plaintiffs contend that the Military and Veterans Code imposes a duty on the Department to provide adequate insurance for their interest. “Where a public entity is under a mandatory duty imposed by an enactment that is designed to protect against the risk of a particular kind of injury, the public entity is liable for an injury of that kind proximately caused by its failure to discharge the duty unless the public entity establishes that it exercised reasonable diligence to discharge the duty.” (Gov. Code, § 815.6.) “This section declares the familiar rule, applicable to both public entities and private persons, that failure to comply with applicable statutory or regulatory standards is negligence unless reasonable diligence has been exer

The Cal-Vet statutory scheme contains a number of provisions relevant here. Military and Veterans Code section 987.1 provides in relevant part: “The department in each individual case may specify the terms of the contract entered into with the purchaser. ...” Section 987.2 provides: “The contract made between the department and purchaser shall provide that the purchaser maintain the farm or home as his place of residence and keep in good order and repair all buildings, fences, and other permanent improvements situated thereon and that the purchaser, if required, insure and keep insured against fire or other hazards, all buildings, fences, other permanent improvements, or crops on the property, loss, if any, under the policies therefor to be made payable to the department as its interest appears. Insurance shall be in the amount, with the insurance companies, and under the conditions specified by the department.” Section 987.3 provides, among other things, that if the purchaser fails to keep the property insured then the department “may” obtain insurance and add the cost to the selling price of the property. Finally, section 987.4, subdivision (b) provides that the Department shall be “the sole judge of: [¶] (a) The legality or validity of taxes, assessments, charges, or encumbrances, and the amount necessary to be paid in satisfaction or discharge thereof, [¶] (b) The amount of insurance to be placed upon the buildings, fences, other permanent improvements, and crops and the amount necessary to be paid for the premiums for such insurance, [¶] (c) The necessity and nature of the work necessary to keep the buildings, fences, and other improvements in good order and repair, and the amount necessary to be paid therefor.”

Plaintiffs contend that somewhere in these statutory provisions a mandatory duty was imposed upon the Department to appraise and reappraise their property, and apparently even to discover new unreported additions and improvements to the property, in order to make sure that Cal-Vet purchasers obtain sufficient insurance to protect their interests completely. We cannot agree. The Cal-Vet statutory scheme fails to satisfy the first two require

“In order to determine whether a particular statutory provision . . . is mandatory or directory, the court, as in all cases of statutory construction and interpretation, must ascertain the legislative intent. In the absence of express language, the intent must be gathered from the terms of the statute construed as a whole, from the nature and character of the act to be done, and from the consequences which would follow the doing or failure to do the particular act at the required time.” (Pulcifer v. County of Alameda (1946) 29 Cal.2d 258 , 262 [ 175 P.2d 1 ], cited with approval in Morris v. County of Marin (1977) 18 Cal.3d 901 , 909-910 [ 136 Cal.Rptr. 251 , 559 P.2d 606 ].) Pursuant to the specific terms of the Military and Veterans Code the requirement of insurance coverage is discretionary rather than mandatory. (See 38 Ops.Cal.Atty.Gen. 107, 109 (1961).) Thus, the department “may” specify the terms of the Cal-Vet contract. The purchaser “if required” must keep the premises insured. If the purchaser fails to insure the premises the Department “may” insure the premises and charge the cost to the purchaser. But the question is not whether the Department had a mandatory or discretionary duty to require plaintiffs to maintain insurance on the premises. The Department in fact required that they so do. The question therefore is whether, in addition to requiring plaintiffs to maintain insurance sufficient to protect the Department’s security interest, the Department had a duty to investigate the circumstances and to require that plaintiffs maintain sufficient insurance to protect their own interests as well.

We cannot agree with plaintiffs that the Department had such a duty. It is true that the code provisions provide that insurance shall be in the amount, with the companies, and under the conditions specified by the Department. (Mil. & Vet. Code, § 987.2.) And the Department is to be the sole judge of the amount of insurance and the premiums necessary therefor. (Mil. & Vet. Code, § 987.4.) But these provisions were intended to give the Department the authority to protect its security interest in the property, not to impose a duty on the Department to protect purchasers. This is indicated by section 987.2, which provides that if insurance is required then loss, if any, is to be payable to the Department as its interest appears. Moreover, these provisions are part of a general statutory scheme which gives the Department authority to protect its security interest with respect to such things as taxes and assessments, liens and encumbrances, the necessity and costs of repair, as well as insurance. These provisions are intended to enable the department to preserve the security for the debt it is owed. (See Eisley v. Mohan (1948) 31 Cal.2d 637 , 643 [ 192 P.2d 5 ].) They give the Department authority to do what is commonly done by lenders financing the ac

Plaintiffs assert that even if the Department did not have a mandatory duty to reappraise their property to determine the proper amount of insurance they should carry, there was evidence that the Department behaved negligently toward them. First, they point to the testimony of John O. Bronson, an expert in the field of insurance. When asked concerning the use of the Marshall and Swift data for updating insurance coverage he answered: “Well, the formula—excuse me—could be correct, but certainly they would have to and should recognize improvements along the line. And if those improvements, of course, were overlooked, then they’re completely out of date and wrong.” Plaintiffs added approximately 55 square feet to their home in the 1970 bathroom project, and approximately 700 square feet (well over 50 percent of the previous living space) in the 1973 project which were not included in the annual insurance updates.

It, of course, does not take an expert to establish that improvements and additions to a home should be considered in determining the proper amount of insurance to purchase. But the failure to include plaintiffs’ improvements and additions is simply not chargeable to the Department. In the 1970 project plaintiffs complied with their contractual duty to obtain the Department’s consent to the improvements. But they specifically and in writing advised the Department not to increase their insurance coverage. In 1973 plaintiffs failed to comply with their duty to obtain consent for the project, and their alleged preproject oral communication with an unidentified employee of the Department is, as a matter of law, insufficient to place the Department on notice of the improvement of their home. (Veterans’ Welfare Board v. Burt, supra, 4 Cal.App.2d at p. 661.) Plaintiffs would apparently require the Department to make annual physical inspections of Cal-Vet homes in order to discover whether any improvements had been made which might increase insurance needs. It would be entirely unreasonable to impose such an onerous burden upon the Department.

Plaintiffs also point to Mrs. Brown’s testimony concerning two telephone contacts with the Department with regard to insurance. In the first, asserted to be sometime around 1972, Mrs. Brown testified that she inquired about insurance with regard to the tax assessed value of the home. She believed that she was probably told that insurance did not have to cover the land and hard structures and that they were “probably okay.” This testimony does not impose liability upon the Department. There is no evidence to indicate that plaintiffs were in fact underinsured at that time. The only evidence in that regard showed that plaintiffs’ insurance at that time was actually well

The second asserted contact occurred shortly before the loss. Mrs. Brown testified that she called the Department when she discovered that their insurance was only in the amount of $31,000, and was informed that they were due for an update on July 1, 1978. This contact is also insufficient to impose liability upon the Department. As we have noted, an oral communication with an unidentified Department employee is not binding upon the Department. More importantly, however, after this communication the Department had no more information than it had before. Mrs. Brown did not testify that she advised the Department of her estimate of the value of their home, nor did she claim to have requested a specific amount of insurance. And Mrs. Brown did not testify that she informed the Department employee of the extensive additions to the home of which the Department yet had no notice and which, according to plaintiffs’ expert, was the major reason their insurance was inadequate.

Whether a defendant owes a duty of care in a given situation is a question of law for the court to determine. (Wilson v. All Service Ins. Corp. (1979) 91 Cal.App.3d 793 , 796 [ 153 Cal.Rptr. 121 ].) For the reasons we have set forth we conclude that the Department did not owe a duty to plaintiffs to guarantee that they had sufficient insurance coverage to protect their property. Accordingly, the judgment cannot stand. In view of this disposition, it is unnecessary to consider the remaining issues in the appeal and on the cross-appeal.

The judgment is reversed.

Regan, Acting P. J., and Blease, J., concurred.