Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC 2013 WL 4538693 (Cal.App. 4 Dist.)
By: Richard H. Glucksman, Jon A. Turigliatto, and David A. Napper
On December 11, 2013, the California Supreme Court denied Respondent, Brookfield Crystal Cove, LLC’s Petition for Review and Request for Depublication of the recent decision by the Fourth District Court of Appeal in Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC, 2013 WL 4538693 (Cal.App. 4 Dist.) in which the Court of Appeal held that California’s Right to Repair Act (SB 800) is not a homeowner’s exclusive remedy for residential construction defects.
Liberty Mutual is now citable decisional authority in California and holds that homeowners may assert common law causes of action for construction defects that have resulted in actual property damage. For construction defect that have caused actual property damage, homeowners are no longer required to comply with SB 800’s statutory pre-litigation procedures which provide builders with the opportunity to make repairs prior to the homeowner’s initiation of litigation. Additionally, the decision permits homeowners to circumvent the shortened limitations periods for certain types of construction defects under the Right to Repair Act.
In light of the Supreme Court’s denial of Brookfield’s Petition for Review and Request for Depublication of the decision, we will now monitor the California State Legislature relative to potential amendments to SB 800 given the decision’s significant precedent and the adverse consequences for California builders relative to their rights under SB800.
An analysis of the Appellate Court’s decision and its impact on construction defect claims is set forth below.
SB 800 (Builder’s Right to Repair Act) is No Longer a Homeowner’s Exclusive Remedy Where Actual Damage has Occurred
The California Fourth District Court of Appeal has held that California’s Right to Repair Act is not a homeowner’s only remedy for claimed construction defects. The import of the decision is that it permits homeowners to circumvent the shortened limitations periods for certain construction defects under the Right to Repair Act and could potentially strip builders and contractors of their statutory right to repair.
RIGHT TO REPAIR ACT (SB 800)
The Right to Repair Act, California Civil Code §895 et seq., commonly referred to in the construction industry as “SB 800”, applies to all new residential construction sold after January 1, 2003. SB 800 provides builders with the right to repair construction defects before homeowners are permitted to initiate litigation. Similarly, SB 800 allows homeowners to seek repairs by a builder without having to initiate litigation. SB 800 also sets forth shortened statutes of limitations for claims arising out of “actionable defects” for the standards of construction specified in the statute. The statutes of limitations range between one and ten years from the close of escrow.
Under SB 800, a violation of the statutory building standards is actionable even if defect has not caused actual damage to property. However, prior to initiating litigation against the builder, the homeowner must provide the builder with notice of the claimed defect, and permit the builder an opportunity to perform a repair.
The very recent decision in Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC. 2013 WL 4538693 (Cal.App. 4 Dist.) now permits homeowners to assert common law claims for construction defects outside the statutory scheme set forth in SB 800 when those defects have resulted in actual property damage.
The Court of Appeal interpreted SB800 narrowly, holding that SB800 was enacted to provide remedies where construction defects have negatively affected the economic value of the home even though the defects have not caused any actual property damage. Where property damage has occurred, the Court held that homeowners may assert common law causes of action for construction defects outside of SB 800’s statutory scheme and specified construction standards and limitations periods. Effectively, homeowners may assert common law claims for construction defects that would otherwise be time-barred by SB800’s shortened limitations periods if those defects have resulted in actual damage to property.
In Liberty Mutual, a homeowner purchased a newly constructed home from Brookfield Crystal Cove LLC. (“Brookfield”) in 2004. In January 2008 a sprinkler system pipe burst causing water damage. While the builder repaired the damage, the homeowner’s insurer, Liberty Mutual Insurance Company (“Liberty Mutual”) paid for the homeowner’s hotel and other relocation expenses during that time. Under SB 800, the statute of limitations for plumbing system defect is four years from the close of escrow. In 2011, Liberty Mutual filed a subrogation claim against Brookfield to recover the homeowner’s relocation expenses. Brookfield demurred to the complaint on the grounds that the claim was time-barred under SB 800’s four year limitations period for plumbing system defects. Liberty Mutual argued that SB 800 is not the exclusive remedy for homeowners, and that homeowners may also assert common law construction defect claims. The trial court ruled in favor of Brookfield finding that Liberty Mutual’s complaint was time-barred under SB800’s shortened limitations period for plumbing defects.
The Appellate Court held that Liberty Mutual’s complaint was not time-barred because SB 800 “does not eliminate a property owner’s common law rights and remedies” where, as here, actual property damage has occurred. The Court narrowly interpreted the Right to Repair Act, reasoning that SB 800 was “enacted to provide remedies where construction defects have negatively affected the economic value of a home, although no actual property damage or personal injuries have occurred as a result of the defects.” In reaching its decision, the Court relied heavily on the legislative intent for SB800, and specifically, on the apparent absence of legislative commentary that SB 800 was intended bar common law claims.
In reaching its decision, the Court addressed the California Supreme Court’s decision in Aas v. Superior Court (2000) 24 Cal.4th 267, which barred common law tort claims for construction defects that have not resulted in actual damage. The Right to Repair Act was a legislative response to the Aas decision and provided homeowners with a statutory remedy for construction defect claims that have not resulted in actual property damage. The Court reasoned further that because many of SB 800’s provisions support the conclusion that SB 800 was enacted to provide homeowners with a remedy where construction defects are discovered before actual damage has occurred, then the lack of apparent legislative discussion regarding claims arising from actual damages indicates that SB800 was not intended to be the exclusive remedy for those claims.
DISCUSSION / IMPACT
Liberty Mutual effectively provides homeowners with a choice of remedies when actual damage has occurred – proceed via SB800 or via common law. If the defect is time-barred under SB 800, homeowners will elect to proceed under common law which provides a ten year statute of limitations for all latent construction defects. Consequently, this decision has the potential to materially impact current and future residential construction defect claims, and could produce an increase in construction defect litigation filings as construction defect claims previously time-barred under SB800 are now viable under common law remedies.
What remains unclear from the decision, but is certainly a matter for concern for builders, is whether the decision effectively strips builders of their right to repair defects prior to the initiation of litigation if the homeowner elects to pursue common law remedies in lieu of SB 800.
Given the significant precedent of the decision and the adverse consequences for California builders relative to their rights under SB800, it is possible that the California State Legislature will take action to clarify the uncertainties raised by the decision by way of amendments to SB 800. We will continue to monitor future activity related to this decision and will keep our clients informed of further developments and impact on projects and litigation.