Weekly Law Resume - September 2013: Construction Defects–Does Right to Repair Act Eliminate a Property Owner’s Common Law Rights and Remedies for Actual Damages Occurred?

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Liberty Mutual Insurance Company v. Brookfield Crystal Cove, LLC
Court of Appeal, Fourth Appellate District (August 28, 2013)

The Right to Repair Act (Code Civ. Proc., sections 896, et seq.) applies to claims for construction defects in new residential construction where the sales contract was executed by the seller on or after January 1, 2003. On August 28, 2013, the Fourth District of Appeal in Liberty Mutual Insurance Company v. Brookfield Crystal Cove, LLC, considered whether the Act eliminated a property owner’s common law rights and remedies when actual damage has occurred.

Eric Hart bought a newly constructed home from Brookfield Crystal Cove LLC (“Brookfield”). A pipe in the home’s sprinkler system burst, causing significant damage. Brookfield repaired the damage. Hart’s homeowner insurer, Liberty Mutual Insurance Company (“Liberty Mutual”), paid Hart’s relocation expenses while Hart was out of his home during repairs. Liberty Mutual sued Brookfield in subrogation to recover their expenses. The trial court found that Liberty Mutual’s complaint was time-barred under the Right to Repair Act, because Liberty Mutual did not file its complaint within four years from the close of escrow (Civil Code § 896(c)). The Court sustained Brookfield’s demurrer and dismissed the Liberty Mutual complaint. The Court of Appeal reversed.

The Court held that Liberty Mutual’s complaint did not fall exclusively within the Act and was, therefore, not time-barred. The Court first discussed the history of the Act and noted that the specific goal of the Right to Repair Act was to abrogate the holding in Aas v. Superior Court (2000) 24 Cal.4th 627, 632 (no tort liability for construction defects in residential properties absent actual property damage). According to the Court, the Act’s legislative history did not support a finding that common law claims for actual property damage were barred. The Court also pointed out that many provisions of the Act support their conclusion that the Act covers instances where construction defects were discovered before any actual damage has occurred. Therefore, a homeowner who suffers actual damages as the result of a construction defect has a choice of remedies between the Right to Repair Act or their common law remedies. In this case, just because the plaintiff did not comply with the time restraints of the Right to Repair Act did not mean that the plaintiff was time-barred from pursuing their common law rights against the developer.

The Court also found that just because the Act provides for a wide range of damages, it “does not mean that the Act abrogated the construction defect statute of limitations” contained in Code of Civil Procedure sections 337.1, (patent defects, four years), and 337.15 (latent defects, ten years). The Court admitted that one of the goals of the Right to Repair Act was to do away with the different statute of limitations applying to latent versus patent defects where those defects did not result in actual property damage. However, it noted that the legislature did not repeal Code of Civil Procedure sections 337.1 and 337.15. In the Court’s view, the legislative history made clear that the intent in enacting the Act was to provide for the identification and repair of construction defects before they cause actual damage to the structure or its content. The Act was not intended to be the sole remedy to recover actual damages incurred as the result of construction defects. In the Court’s view, the Act itself acknowledged that other laws may apply to construction defect claims, not just the Right to Repair Act, and therefore the Act was not the exclusive means for seeking redress once construction defects cause property damage.

COMMENT

This is a very important case and undoubtedly will be appealed by Brookfield and the construction industry because it allows a plaintiff to avoid the Right to Repair Act if they have suffered actual damages. Prior to this decision, the construction industry had fought hard to enact the Right to Repair Act and felt that the Right to Repair Act was the exclusive remedy for homeowners or insurers in subrogation actions. If the builders did not comply with the Right to Repair Act, only then could a lawsuit be filed. Under this decision, a property owner that has suffered actual property damage may elect to proceed under the Right to Repair Act or common law theories of liability or both. We will monitor this case to see whether it is taken by the California Supreme Court. For the time being, a homeowner or its insurance company may proceed under either the Right to Repair Act or its common law remedies if property damage has actually occurred.

For a copy of the complete decision see:

http://www.courts.ca.gov/opinions/documents/G046731.PDF