In a decision which may have impacts on California construction defect claims, at least where common law property damage claims can be asserted, the California Court of Appeal, Fourth Appellate District, ruled in Liberty Mutual Insurance Company v. Brookfield Crystal Cove, LLC (2013) 219 Cal.App.4th 98 ("Liberty Mutual") that, in the context of a subrogation action arising from property damage resulting from defective sprinklers which were installed in a single family residence, the Right to Repair Act, also known as SB 800, did not bar common law claims against the developer for property damage resulting from construction defects.
The facts of the Liberty Mutual case are common enough. In that case, Eric Hart bought a newly constructed home from Brookfield Crystal Cove LLC ("Brookfield") in 2004. In January 2008, a pipe in the home sprinkler system burst, causing significant damages. Brookfield repaired the damage. Hart's homeowners insurer, Liberty Mutual Insurance Company ("Liberty Mutual Insurance"), paid Hart's relocation expenses incurred while Hart was out of his home during the repair period. In August 2011, Liberty Mutual Insurance sued Brookfield in subrogation to recover those expenses alleging causes of action for strict liability, negligence, breach of contract, breach of warranty, equitable estoppel, and declaratory relief.
Brookfield filed a Demurrer to the Complaint arguing that the defective sprinklers were within the standards embraced in Civil Code § 896, that the provision in Civil Code § 896 which applied to the sprinklers has a four year statute of limitation period and Liberty Mutual Insurance failed to file suit within the time period called for under the Right to Repair Act.1 Based on the
1 Civil Code § 896 provides in pertinent part: "(14) The lines and components of the plumbing system, sewer system, and utility systems shall not leak…..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…"
Demurrer, the trial court ruled that Liberty Mutual Insurance's Complaint was time barred under the Right to Repair Act.
On Appeal, Liberty Mutual Insurance asserted that its Complaint did not fall exclusively within the Right to Repair Act and that the property owner's common law property damage claim survived. The Court of Appeal agreed. In its holding, the Court of Appeal ruled that, while the Right to Repair Act was an act 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, the Right to Repair Act does not eliminate a property owner's common law rights and remedies, otherwise recognized by law, where actual property damages occurred. Quoting the Court:
"Nowhere in the legislative history [of SB 800] is there anything supporting a contention that the Right to Repair Act barred common law claims for actual property damage. Instead, the legislative history shows that the legislation was intended to grant statutory rights in cases where construction defects caused economic damage; the Act did nothing to limit claims for actual property damage. Simply put, 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."
The Liberty Mutual decision will mean that, in addition to rights under the Right to Repair Act (i.e. the right to assert a claim for breach of a construction standard whether or not there is property damage), a homeowner, so long as actual property damage has occurred, may also assert claims based upon common law and those claims will be subject to the three, four and ten year periods which have traditionally applied to construction defect claims in California. [See, Winston Square Homeowner's Assn. v. Centex West, Inc. (1989) 213 Cal.App.3d 282, 292]
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