There’s More Than One Way to Skin a Cat When it Comes to Actual Damages Under SB 800

by Wendel, Rosen, Black & Dean LLP
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Feliz the Cat clockIn 2002, the California State Legislature enacted S.B. 800 also known as the “Right to Repair Act” (Civil Code sections 895 et seq.).

SB 800, which applies to newly constructed single-family residences sold after January 1, 2003, was intended to curb construction defect lawsuits by giving developers an opportunity to repair defects before being sued in court. In addition, SB 800 provides minimum construction standards for building components and limits the time in which a homeowner can bring a claim for defects of those components.

In a recent case, Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC, Case No. G046731 (August 28, 2013), the California Court of Appeals for the Fourth District addressed the time limits under the Right to Repair Act and held that an insurer’s subrogation claim was not time barred under SB 800 because the act does not provide the exclusive remedy for construction defects involving “actual” property damage.

Background

In 2004, Eric Hart (“Hart”) purchased a single-family home from developer Brookfield Crystal Cove LLC (“Brookfield”). In 2008, a fire sprinkler pipe burst and flooded the home. Brookfield, acknowledging liability, repaired the damage to Hart’s home. While the repairs were being done, Hart moved into a hotel for several months. Hart’s homeowner’s insurance company, Liberty Mutual Insurance Company (“Liberty Mutual”), paid for Hart’s hotel and relocation expenses.

The Subrogation Action

In 2011, Liberty Mutual filed a subrogation complaint against Brookfield to recover the hotel and relocation expenses it had paid on behalf of Hart. Subrogation is where a person takes over the rights or remedies of another person against a third-party. In this case, Liberty Mutual was taking over the rights and remedies of Hart to be reimbursed for his hotel and relocation expenses against Brookfield caused by the flooding of his home.

In the trial court, Brookfield filed a motion to have Liberty Mutual’s complaint dismissed on the ground that the action was governed exclusively by the Right to Repair Act and Liberty Mutual had failed to file its lawsuit within the statute of limitations provided under SB 800 for “plumbing and sewer issues” which provides that “no action may be brought . . . more than four years after close of escrow” since Liberty Mutual did not file it’s lawsuit until 2011 more than four years after Hart purchased his home in 2004. The trial court agreed and Liberty Mutual appealed.

The Appeal

On appeal, the California Court of Appeals for the Fourth District reversed. The Court, discussing the legislative history of SB 800, explained that one of the reasons the Right to Repair Act was enacted was to abrogate a California Supreme Court decision in Aas v. Superior Court, 24 Cal.4th 627 (2000), which held that in the absence of “actual” property damage homeowners could not file suit for construction defects in residential property. SB 800, the Court explained, was intended to change the law so that homeowners could file suit for construction defects even where the only damages are “economic” damages. That is, construction defects which don’t result in “actual” property damage, but which nevertheless cause monetary damage as a result of the construction defects.

While the Right to Repair Act was intended to allow homeowners to file suit to recover economic damages, stated the Court, “[n]othing in the Act supports a conclusion it rewrote the law on common law claims arising from actual damages sustained as a result of construction defects.” And, because SB 800 did not rewrite the law on common law claims arising from actual damages and Hart experienced “actual” property damages as a result of his home being flooded, concluded the Court, Liberty Mutual’s subrogation claim was not barred by the four-year statute of limitation relating to “plumbing and sewer issues.”

Conclusion

Since SB 800 was enacted in 2002, single-family housing developers, homeowners and insurers have widely believed that the Right to Repair Act provides the exclusive remedy for construction defect claims arising out of newly constructed single-family residences, including time limits for bringing such claims. Brookfield challenges this notion, at least when it comes to claims involving “actual” property damages, as there is apparently more than one way to skin a cat when it comes to actual damages under SB 800.

Moreover, while Brookfield involved a subrogation claim by an insurer, its rationale would arguably apply as well to claims brought directly by homeowners.

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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