Construction Defect Litigation: Right to Repair Act (SB 800) Does Not Eliminate Common Law Remedies for Actual Damage to Residences

California’s Right to Repair Act (also known as SB 800) provides court remedies for a homeowner when construction defects diminish the economic value of a home, even though no personal injuries or actual property damage have occurred.  A recent California appellate court decision confirmed that the remedies provided by the Right to Repair Act do not preclude the application of other legal rights and remedies when a residence sustains actual damage due to construction defects.

In Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (— Cal.Rptr.3d —-, Cal.App. 4 Dist., August 28, 2013), Eric Hart (“Hart”) purchased a newly-built home from Brookfield Crystal Cove LLC (“Brookfield”).  After a pipe in the home’s fire sprinkler system burst, Hart moved out while Brookfield repaired the damage.  During this time, Hart's homeowner’s insurer, Liberty Mutual Insurance Company (“Liberty Mutual”), paid Hart's relocation expenses.  Liberty Mutual sought to recover the expenses in court from Brookfield, but the trial court rejected Liberty Mutual’s lawsuit for not meeting the time limits of the Right to Repair Act.

In reversing the trial court decision, the Fourth District Court of Appeal observed that the history of the Right to Repair Act indicated that the Legislature did not intend for the Act to replace common law remedies for actual damage caused by construction defects.  Instead, the Legislature enacted the Act to allow homeowners to correct construction defects before the defects caused actual harm or damage.  The 2002 enactment was specifically aimed at overturning the holding of a state Supreme Court case that held a homeowner could not sue for residential construction defects that did not cause actual property damage, even though the defects caused a drop in the home’s value.  (Aas v. Superior Court (2000) 24 Cal.4th 627).  The court of appeal stated that nothing in the Act’s legislative history showed legislative intent to limit claims for actual property damage.

Additionally, the appellate court also noted that the language of the Act itself indicated that claims related to actual damage are not covered by the Right to Repair Act.  For example, one provision of the Act allows homeowners to bring claims only by proving that the home’s construction does not meet an applicable standard, without proving causation and damages.  The court pointed out that such a provision “makes perfect sense” for claims made before construction defects cause any physical damage.  However the provision does not support the idea that the Legislature meant to suspend the requirement to prove causation and damages when a construction defect has caused actual, physical damage.  Two other provisions of the Act specifically refer to legal remedies and causes of action for construction defects outside of the Act, which the court found established that the Act itself acknowledges that it is “not the exclusive means for seeking redress when construction defects cause actual property damage.”

The appellate court rejected Brookfield’s argument that the notification timeframes provided in the Act applied to all construction defect claims, not only those that have not yet caused actual damage.  The court noted that in the event “of an actual catastrophic loss, the detailed timeframes would be unnecessary and nonsensical.”  Moreover, such a ruling would “effectively extinguish the subrogation rights of all homeowners' insurers who promptly cover their insureds' catastrophic losses.”

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