California Court of Appeals Rules The Right to Repair Act Does Not Apply to Cases With Actual Property Damages
The California Court of Appeals ruled this summer, in a surprising decision that has shaken the building industry, that the Right to Repair Act does not apply in cases where a home has suffered actual damages. In the case before the Court, Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC, Eric Hart purchased a newly constructed home from Brookfield. Just three years later, a pipe burst causing significant water damage to the home and forcing Hart to live in a hotel for several months while repairs were made. Brookfield accepted liability and made the necessary repairs. Hart’s insurance company, Liberty Mutual, paid Hart’s relocation expenses and three years later filed a complaint in subrogation against Brookfield to recover those expenses. Brookfield demurred to Liberty Mutual’s complaint; Liberty Mutual failed to amend its complaint within the required time period and Brookfield’s motion to dismiss was granted. Liberty Mutual appealed. The trial court based its ruling upon the fact that Liberty Mutual’s complaint was time-barred under California’s Right to Repair Act, Civil Code section 895 et seq. Specifically, the Court held that section 896, subdivision (e) applied which states:
“Plumbing and sewer systems shall be installed to operate properly and shall not materially impair the use of the structure by its inhabitants. However, no action may be brought for a violation of this subdivision more than four years after close of escrow.”
As Liberty Mutual’s complaint was not brought until at least seven years after close of escrow, the trial court found it was barred by this provision of the Right to Repair Act.
In 2002, the Right to Repair Act was enacted in response to the California case Aas v. Superior Court (2000) 24 Cal.4th 627 in which the California Supreme Court held that, in residential properties, construction defects were not actionable in tort unless there was actual property damage. The Act abrogated this requirement, allowing action to be brought prior to any damage on the home. As noted by the Court of Appeals, nowhere in the Act is there anything to suggest that it barred common law claims for actual property damage. After a lengthy analysis of the Act’s provisions and historical development, the Court of Appeals concluded that the Act was intended only to apply in cases where no damage had yet to occur and was not intended to be the exclusive remedy available to homeowners. As evidence of this, the Court noted that the legislature did not repeal those existing statute of limitations applicable to construction defect cases found in California Code of Civil Procedure section 337.1 (providing a four-year statute of limitations for patent defects) or section 337.15 (providing a ten-year statute of limitations for latent defects). The Court further stated, “[t]hose statutes remain and evidence a legislative intent and understanding that the limitations periods they contain could and would be used in litigation other than cases under the Act.”
Since Hart’s home suffered actual property damage as a result of the defect, the Court held that the Act was not intended to apply and was therefore not the exclusive remedy available. Therefore, Liberty Mutual’s complaint was not time-barred under the Act.
This case has caused quite a bit of uproar in the construction industry due the fact that it changes how the law has previously been applied. Prior to this ruling, trial courts applied the Act to all cases involving residential construction defects, regardless of whether there was actual damage or not, and this was the general understanding of the law’s application among home-owners, builders, and insurance companies. Now, home-owners, and their insurance companies, may pursue common law claims or remedies available under the Act. This case serves to raise more questions than it answers and further developments are expected to follow, many believing the Court’s ruling in this case may be overturned.