Real Estate Litigation: Appellate Court Rules that SB800 Does Not Apply to Cases Involving Physical Damages (Updated 12/19/13)

December 19, 2013

Original Article Published 9/19/13:  The Right to Repair Act, also known as “SB800” (the “Act”), which applies to new residential construction sold on or after January 1, 2003, superseded common law causes of action such as strict liability and negligence by homeowners for defective residential construction.  The Act gave builders a right to repair any alleged deficiencies before homeowners could sue.  Not so, said the Court of Appeal in Santa Ana on August 28, 2013. In a ruling that comes as a surprise to many in the building industry, the Court of Appeal in Santa Ana held that the Act does not apply to cases where there has been actual physical property damage as a result of a construction deficiency.  (Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC (Aug. 28, 2013, 2013 WL 4538693.)  According to the Court’s ruling, the  Act applies only when there has not yet been any physical damage.  “Nowhere in the legislative history is there anything supporting a contention that the Right to Repair Act barred common law claims for actual property damage,” the Court held.  “A homeowner who suffers actual damages as a result of a construction defect in his or her house has a choice of remedies; nothing in the Act takes away those rights.”

This ruling, if not either withdrawn by the Court or overruled by the Supreme Court, means that for builders who “opted in” to the Act’s pre-litigation “right to repair” provisions, those rights no longer exist in cases where there is actual physical damage, at least in this Court’s opinion.  Whether other Courts of Appeal will agree remains to be seen.  The Court went so far as to call the right-to-repair procedures in the Act “nonsensical” when there has been actual physical damage.  For builders who “opted out” of the pre-litigation “right to repair” provision of the Act and created their own alternative pre-litigation procedures in their  agreements with homebuyers, those pre-litigation procedures should still be enforceable under the common law. 

The Court also held that the Act did not repeal the ten year limitations period set forth in section 337.15 of the Code of Civil Procedure for claims involving actual physical damage.  Thus, this Court’s ruling means that the shorter periods for bringing claims for certain types of defects set forth in the Act, some of which are as short as two years from close of escrow, are inapplicable in cases involving actual physical damage.  

In a Petition for Rehearing filed on September 12, 2013, Brookfield argued that the plain language of the Act evidenced the Legislature’s intent to govern “everything that could go wrong with residential construction”  and overrule both previously existing statutory and common law principles applicable to deficiencies related to residential design and construction.   “Reading the Act as a whole, the Legislature wrote a comprehensive scheme preempting common law actions for deficiencies in new housing.”  

If the Court of Appeal does not grant Brookfield’s Petition for Rehearing, then Brookfield may file a petition for review before the California Supreme Court.

Update 12/19/13:  The California Supreme Court has denied review of Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC, in which the Court of Appeal in Santa Ana held that held that the Right to Repair Act, also known as “SB800” (the “Act”), does not apply to residential construction defect claims where there has been actual physical damage as a result of a construction deficiency.  The Court of Appeal held that “[n]owhere in the legislative history is there anything supporting a contention that the Right to Repair Act barred common law claims for actual property damage” ... [A] homeowner who suffers actual damages as a result of a construction defect in his or her house has a choice of remedies; nothing in the Act takes away those rights.” Prior to this decision, it was widely assumed that the Act superseded common law causes of action such as strict liability and negligence by homeowners for defective residential construction.  As a result of the California Supreme Court’s denial of review of this case, the Court of Appeal’s ruling stands.   It is now up to the Legislature in Sacramento to determine whether to address the appellate court’s narrow view of the Act’s applicability.

This ruling means that for builders who “opted in” to the Act’s pre-litigation “right to repair” provisions, those rights no longer exist in cases where there is actual physical damage, at least in this Court’s opinion.  Whether other Courts of Appeal will agree remains to be seen.  The Court went so far as to call the right-to-repair procedures in the Act “nonsensical” when there has been actual physical damage.  On the other hand, for builders who “opted out” of the pre-litigation “right to repair” provision of the Act and created their own alternative pre-litigation procedures in their  agreements with homebuyers, those pre-litigation procedures should still be enforceable under the common law regardless of whether there has been actual physical damage.

The Court of Appeal also held that the Act did not repeal the ten year limitations period set forth in section 337.15 of the Code of Civil Procedure for claims involving actual physical damage.  Thus, this Court’s ruling means that the shorter periods for bringing claims for certain types of defects set forth in the Act, some of which are as short as two years from close of escrow, are inapplicable in cases involving actual physical damage.

For more information, contact Edward Galloway 949.851.7461 egalloway [at] jdtplaw.com

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