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A California court has considered whether an arbitration clause in purchase agreement could still be invoked when the clause excluded claims for bodily injuries and buyer claimed to have contracted gestational diabetes from the distress caused by the property’s termite infestation.
Denna and Kenny Gravillis, Jr. (“Buyers”) purchased a home. The Buyers were represented in the transaction by Coldwell Banker Residential Brokerage Company (“Brokerage”). The purchase agreement used in the transaction was the standard purchase-and-sale form prepared by the California Association of REALTORS® (“CAR”). The form contains an arbitration clause which requires the purchaser and the seller to arbitrate all claims arising out of the transaction; however, claims involving bodily injury, wrongful death, and/or construction defects were excluded from the agreement’s arbitration provisions.
Following the purchase of the home, the Buyers retained a contractor to perform remodeling on the property. During the remodeling, it was discovered that the property had termite damage. The termite damage was so extensive that it necessitated the rebuilding of the home.
The Buyers filed a lawsuit against the Brokerage, the seller, the seller’s broker, and the inspection company. The Buyers claimed that the Brokerage had failed to disclose “known material defects about the property” and negligently recommended a termite inspector. Because of these failures, the Buyers had allegedly suffered emotional distress, including one of the Buyers developing gestational diabetes during her pregnancy. The Brokerage sought to compel arbitration of the dispute. The trial court ruled that the arbitration clause’s exclusion for bodily injuries barred the Brokerage from invoking the arbitration clause and so the lawsuit would continue. The Brokerage appealed.
The California Court of Appeal reversed the trial court and sent the case back to the lower court for further proceedings. The issue before the court was whether gestational diabetes allegedly caused by emotional distress arising from a real estate transaction fell into the arbitration clause’s exclusion for claims involving “bodily injury”. The court determined that the Buyers’ claims were essentially for emotional distress, since none of the claims involved a physical injury while caused while on the property, such as falling into a hole or inhaling toxic fumes. Instead, their claims were based on injuries caused by the stress resulting from the purchase of the home.
While no California court has considered whether the CAR form’s “bodily injury” exclusion covers emotional distress claims, courts have considered similar exclusions in insurance policies. In those cases, court have concluded that “bodily” injuries covers physical injuries, rather than mental or spiritual harms. Thus, the Buyers “emotional distress” claims were not barred by the bodily injury exclusion.
The court also found that recovery for emotional distress only occurs when the defendant breaches a legal duty owed to the plaintiff and the emotional distress is proximately caused by the breach of that duty. Here, the allegations against the Brokerage were that it failed to disclose termite damage. Since gestational diabetes is an unlikely result of such a failure to disclose, the court ruled that it was unlikely that the Buyers could recover emotional distress damages against the Brokerage and so the court ruled that “bodily injury” would not include diabetes caused by emotional distress. Therefore, the court returned the matter to the trial court for further proceedings.
Gravillis v. Coldwell Banker Residential Brokerage Co., 182 Cal.App.4th 503, (Cal. Ct. App. 2006).