Recent Court Decision Threatens to Expand Home Builders' Liability for Construction Defects

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BB&K's Victor Wolf Examines the Fallout of Apellate Decision on California Law

The Press-Enterprise - February 26, 2014.

For more than a decade, contractors and home builders have looked to Senate Bill 800, commonly known as the “Right to Repair Act,” as California’s mandatory process that homeowners must follow before filing a lawsuit over construction defect claims. But a recent state appellate decision appears to unravel that long-held process and, in fact, potentially expands home builders’ liability for construction defects.

Lawmakers passed SB 800 in 2002 as a way to respond to concerns by builders and insurers over the costs associated with construction defect litigation, as well as concerns by homeowners and their advocates over the fall-out of a decision by the California Supreme Court. Two years earlier, the state’s highest court had ruled in Aas v. Superior Court that homeowners could not recover damages in negligence for construction defects that had not yet caused either property damage or personal injury.

Since SB 800’s passage, many builders, insurance companies and legal commentators interpreted the Right to Repair Act as the sole and exclusive means for homeowners seeking recovery of damages for residential construction defects.

Such an interpretation provided builders with several advantages, including:

- limiting claims for defects to the building standards set out in the Act.

- requiring homeowners to give notice and follow pre-litigation procedures before filing suit.
That gives the builder the opportunity to inspect the alleged violation, offer to repair it, and either fix the violation or arrange for a repair to be done. Only if the builder fails to respond to the claim, or otherwise fails to comply with the requirements of the Act's pre-litigation procedures, can a homeowner bring a lawsuit for a violation of the Act's standards. A homeowner may also file an action for a violation of the Act's building standards alleging an inadequate repair.

- reducing the statutes of limitation for a number of defects. For example, while the statutes of limitation for construction defects generally is four years for patent (i.e., apparent) defects and ten years for latent (i.e., not reasonably apparent) defects, the Act provides that claims relating to plumbing and electrical work cannot be brought more than four years after close of escrow regardless of whether such defects are latent or not.

But a recent decision by the Fourth District Court of Appeal, in a case involving a pipe that burst in a home and flooded it, threatens to completely undermine the builders’ position and eliminate any advantages the Act granted them.

In Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC, the appellate court ruled that the Act only applies to defects that had not yet caused damage, and does not bar claims under common law theories of negligence in cases where actual damage has occurred.

As a result, the court held that the shortened statutes of limitations under the Act did not apply to defects that had caused damage. Moreover, by implication, this ruling means that when it comes to damage-causing defects, a homeowner is not limited to the defects set out in the Act, nor is the homeowner required to follow the pre-litigation procedures before filing suit.

While the state Supreme Court in December decided against reviewing the appellate court decision, it remains to be seen whether other state appellate courts will follow the Liberty Mutual decision. As a published appellate decision, Liberty Mutual establishes precedent in the trial courts and raises the specter of significantly expanding home builders’ potential exposure for construction defect claims beyond what builders and insurers had assumed to be the case for more than a decade.           

* This article first appeared in The Press-Enterprise on Feb. 23, 2014. Republished with permission.

Topics:  Construction Defects, Liability, Real Estate Market

Published In: Civil Procedure Updates, Construction Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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