Rumble in the Construction Defect Jungle

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Lately, reading the advance sheets of construction defect cases has been like watching one of the Rocky Rockymovies. There’s the punches (owww!). Then there’s the counter-punches (ohhh!). And on and on it goes with blow meeting blow.

Late last year there was Liberty Mutual Company v. Brookfield Crystal Grove, LLC, 219 Cal.App.4th 98 (August 28, 2013), in which the Court of Appeals held in a case involving a subrogation claim by an insurer that the Right to Repair Act also known as SB 800 (Civil Code sections 895 et seq.) does not provide the “exclusive remedy” for construction defect claims involving “actual” as opposed to mere “economic” damages in new residential construction.

Six months later there was Burch v. Superior Court, Case No. B248830 (February 19, 2014), in which the Court of Appeals erased any hope that the holding in Brookfield was limited to subrogation claims by an insurer, by holding that Brookfield applies as well to claims by a homeowner directly against a homebuilder and allowing the homeowner in the case to pursue claims against the homebuilder for negligence and breach of implied warranty.

Now, hot on the heels of Burch, there’s KB Home Greater Los Angeles, Inc. v. Superior Court, Case no. B246769 (February 21, 2014), another case involving the Right to Repair Act.  This time, however, it was the homebuilder who got the better of the fight.

KB Homes Greater Los Angeles, Inc. v. Superior Court

In KB Home, a homeowner bought a new home from KB Homes in 2004. As part of the purchase agreement, the homeowner signed a right to repair addendum agreeing to use the prelitigation procedures of the Right to Repair Act. In March 2010, a water leak was discovered, and the homeowner called his insurer Allstate. Being in good hands, at least for the homeowner, Allstate hired a mitigation company to remove the excess water and repair the damaged dry wall and carpet. In July 2010, Allstate sent a letter to KB Home of its intent to pursue its subrogation rights, and in November 2010, Allstate’s lawyer sent a demand letter to KB Home demanding reimbursement of $80,984.61. KB Home did not respond.

In March 2011, Allstate filed suit against KB Home for reimbursement, asserting causes of action for negligence, breach of implied warranty and strict liability. After  KB Home challenged the complaint on the ground that Allstate did not allege that it had followed the prelitigation procedures under SB 800, Allstate filed a first amended complaint asserting a single cause of action for property damage under the Right to Repair Act. Once again, KB Home challenged the complaint on the ground that Allstate had failed to serve a notice of claim as required by the prelitigation procedures under the Right to Repair Act before Allstate had performed its repairs which would have allowed KB Home to make the repairs on its own. Allstate then filed a second amended complaint combining all of the causes of action from its previous two complaints.

KB Home then filed a motion for summary judgment arguing that because Allstate had failed to serve a notice of claim under the Right to Repair Act, which deprived KB Home of its right to make the repairs on its own, that Allstate could not make a claim for property damage under SB 800. The trial court, relying on the Brookfield case, which had been decided by that time, denied KB Home’s summary judgment motion on the ground that Allstate substantially complied with the prelitigation notice procedures under the Right to Repair Act and KB Home lost its right to make the repairs itself when it failed to respond to Allstate’s letters. KB Home appealed (note: interestingly, or interesting for us attorneys at least, is that this was the fourth appeal by KB Home in the same case!).

The Court of Appeals Decision

On appeal, Allstate argued that under the Brookfield case, KB Home’s appeal was moot because under Brookfield the Right to Repair Act does not apply to cases involving “actual” property damage, and because actual property damage had in fact occurred, Allstate had valid common law claims outside SB 800.  The Court of Appeals for the Second District, however, gave short shrift to Allstate’s argument.  While Allstate had common law claims, those claims were dismissed by the Court of Appeals (note: this was one of the earlier appeals), before the Brookfield case was decided.  In short, good try, but too late.

Rather, explained the Court, “[t]he issue that is before us is whether the [Right to Repair] Act requires that notice be given to a builder before repairs are made” and “[Brookfield] did not address that issue since, in that case, the builder was allowed to repair the damage to the home.” “Here, in contrast,” the Court continued, “it is undisputed that KB Home was not given notice or opportunity to inspect and repair the defect before the damage was repaired” and “[w]e conclude that the failure to give timely notice to KB Home is fatal to Allstate’s cause of action under the [Right to Repair] Act.”

Conclusion

There are a couple of take aways from this case. First, as you’ve likely surmised, this case is extremely limited in its application since its unique facts involve common law claims which were dismissed before the Brookfield case was decided, leaving only the insurer’s claim under the Right to Repair Act. If the Brookfield case was decided earlier, or the appeal involving Allstate’s common law claims was decided later, it could well be that Brookfield would have been decided and Allstate’s common law claims would have survived.

However, the more important take away is that even in this post-Brookfield world, a claim involving “actual” property damage can still be brought under the Right to Repair Act, but if you do you need to follow the rules which come along with it.

Ding, ding.

Topics:  Construction Defects, Construction Disputes

Published In: Civil Remedies Updates, General Business Updates, Construction Updates, Insurance 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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