By: Jon A. Turigliatto and David A. Napper
March 17, 2014
As an update to our recent article regarding the Fourth District Court of Appeal’s decision in Liberty Mut. Ins. Co. v. Brookfield Crystal Cove LLC (2013), within the period of two days, two separate divisions of the Second District Court of Appeal issued opinions regarding the application of the Builder’s Right to Repair Act commonly referred to as SB800, and examining the Liberty Mutual decision. In Liberty Mutual, the Fourth District Court of Appeal held that SB800 is not a homeowner’s exclusive remedy for construction defects and that the statutory scheme does not eliminate a property owner’s common law rights and remedies where actual property damage has occurred.
In Burch v The Supreme Court, the Court of Appeal extended Liberty Mutual to direct claims by homeowners against builders.
In the other decision, KB Home v The Supreme Court, the Court of Appeal held that a builder is entitled to summary judgment pursuant to SB800 if the homeowner failed to provide the builder with notice of the defect and an opportunity to make repairs prior to filing the litigation.
THE SECOND DISTRICT COURT OF APPEAL FOLLOWS THE FOURTH DISTRICT, HOLDING THAT THE RIGHT TO REPAIR ACT IS NOT A PROPERTY OWNER’S EXCLUSIVE REMEDY WHERE ACTUAL PROPERTY DAMAGE HAS OCCURRED
Burch v. The Superior Court of Los Angeles County 2014 WL 640707 (Cal.App.2 Dist.)
The Second District Court of Appeal (Division Three) has followed the Fourth District Court of Appeal’s holding in Liberty Mut. Ins. Co. v. Brookfield Crystal Cove LLC (2013). The ruling in Burch is essentially identical to the ruling in Liberty Mutual with a critical nuance regarding the factual background of the two cases. Burch, importantly, is a case involving a direct claim by an owner of a single family home, while Liberty Mutual a homeowners’ insurer’s subrogation claim to recover relocation expenses.
In Burch, the developer and general contractor asserted that SB800 established a statutory scheme for violation of the act’s functionality standards that constitutes the exclusive remedy for construction defects and that SB800 abrogated common law claims for damages arising out of construction defects. The homeowner contended that SB800 does not provide the exclusive remedy for damages for construction defect claims. The Court agreed with the Liberty Mutual court’s examination of SB800 and its legislative history and held that SB800 does not limit or preclude common law claims for damages for construction defects that have caused actual property damage.
Burch is significant in that another appellate court has followed the ruling in Liberty Mutual, and has applied Liberty Mutual’s holding to a homeowner’s direct action against the builder of a single family residence. Where a construction defect has caused actual property damage, a homeowner is not restricted to the statutory scheme and remedies set forth in SB800, and may pursue traditional common law remedies.
THE SECOND DISTRICT COURT OF APPEAL HOLDS THAT A BUILDER IS ENTITLED TO SUMMARY JUDGMENT IF THE HOMEOWNER CLAIMANT DOES NOTPROVIDE THE BUILDER WITH NOTICE BEFORE REPAIRS ARE MADE
KB Home Greater Los Angeles, Inc. v. The Superior Court of Los Angeles County 2014 WL 667368
In KB Home, a decision published within two days of Burch, The Second District Court of Appeal (Division Four) addressed the issue of whether recovery under SB800 requires that timely notice be given to a builder before repairs are made. Whether SB800 or common law remedies apply to SB800 claims was not an issue addressed by the Court.
After a water leak occurred in the residence, the homeowner contacted his insurer, Allstate, which hired a mitigation company to complete repairs. After the repairs were completed, Allstate sent KB Home notice of its intent to recover repair costs. KB Home did not respond, and Allstate filed its subrogation action.
KB Home moved for summary judgment on Allstate’s sole cause of action for violation of SB800, on the grounds that Allstate’s insured failed to comply with SB800’s pre-litigation procedures because the insured homeowner did not provide KB Home with notice of the defect, thereby precluding the builder from its right to inspect and offer to repair. Allstate filed a motion for summary judgment asserting that KB Home violated SB800’s building standards and was statutorily liable for damages, and that SB800 does not expressly require notice to the builder be given prior to making repairs. The trial court denied KB Home’s summary judgment motion and granted Allstate’s motion.
On appeal, the Court addressed the issue of whether SB800 requires that notice be given to a builder before repairs are made. The Court held that the homeowner’s failure to provide KB Home with timely notice was fatal to Allstate’s action pursuant to SB800. SB800’s pre-litigation procedures are sequential, and notice provides the builder with the opportunity resolve a homeowner’s defect claim expeditiously. According to the Court, “completing repairs before giving a notice of defect turns the pre-litigation procedure on its head and precludes the builder from inspecting and making an offer to repair.”
Allstate argued that SB800’s procedural requirements were not practical when the defect causes actual damage, and that SB800 does not apply in such cases. The Court disagreed, stating that “[SB800] does not prevent the homeowner from seeking immediate redress in a catastrophic damage case.” Moreover, the builder is incentivized to act quickly in such instances to mitigate the homeowner’s consequential damages which are recoverable.
The Court held that the failure to give KB Home notice and an opportunity to inspect and repair excused KB Home from liability for damages under SB800. The Court did not have to address the application of Liberty Mutual and whether Allstate could pursue common law theories of recovery in this instance of actual property damage, because Allstate’s sole remaining cause of action was based on SB800.
KB Home is significant because the Court enforced strict compliance with SB800’s procedural requirements. SB800’s “pre-litigation procedure” of providing timely notice to the builder must be followed by a homeowner prior to making repairs. Failure to do so is fatal to the homeowner’s post-repair claims for damages under SB800. Of course, the ruling may be eviscerated by Liberty Mutual in cases where the homeowner or claimant asserts law claims for defects that have caused actual property damage. In such cases, even if a homeowner fails to comply with SB800’s notice requirements, the homeowner’s claims under common law theories would be permitted to proceed even if the SB800 claims are barred.