Last week, the California appellate courts decided two cases with ramifications under the Right to Repair Act. The first case, Burch, addresses whether the Right to Repair Act is the exclusive remedy for the homeowner. The second case, KB Home, addresses a situation where a homeowner or the homeowner’s insurer fails to follow the procedures under the Right to Repair Act.
Last August, the Fourth Appellate District announced its decision in Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98 holding that SB 800 is not a homeowner’s exclusive remedy in situations where defects cause actual damage. Many lawyers believed that Liberty Mutual would be a one-off because of its facts – it was a subrogation case brought by an insurance company. So much for that.
Now the Second Appellate District is getting into the act.
In Burch v. The Superior Court of Los Angeles County, et al., the Second Appellate District overturned an order granting summary adjudication in favor of a developer, general contractor, and their respective owners, in a construction defect action brought by a residential homeowner. The trial court found that the Right to Repair Act precluded the homeowner’s negligence and implied warranty claims but the Court of Appeal reversed.
Custom Home Builders, a general contractor, built a single family residence in Los Angeles pursuant to a written contract with Premier Homes, the developer. Plaintiff, Cynthia Burch purchased a home from the developer and encountered construction-related defects causing property damage. Burch brought an action against the general contractor, developer and individual company owners asserting, among other claims, breach of contract, negligence, breach of implied warranty and breach of contract/third party beneficiary.
The defendants moved for summary adjudication. As to the negligence and breach of implied warranty causes of action, the defendants argued that the Right to Repair Act established the exclusive remedy for damages for construction defects and abrogated common law claims for damages for construction defects. The general contractor separately argued that with respect to the negligence and breach of implied warranty claims, it had no contractual or other relationship with Burch, owed no duty of care, and therefore, could not be liable for such claims. The trial court granted summary adjudication in favor of all defendants as to the negligence and breach of implied warranty causes of action, citing the Right to Repair Act in support of its ruling.
Burch challenged the summary adjudication on the basis that the Right to Repair Act did not provide an exclusive remedy and the general contractor/owner defendants failed to negate the existence of a duty of care and an implied warranty. The Court of Appeal agreed.
The Court held that based on Liberty Mutual, the Right to Repair Act does not provide an exclusive remedy and does not limit or preclude common law claims for damages for construction defects that have caused property damage. Both the negligence and breach of implied warranty causes of action asserted by Burch included common law claims for damages for construction defects, including defects allegedly resulting in property damage. Therefore, the Right to Repair Act does not preclude such common law claims and summary adjudication of these counts was in error.
The general contractor also argued it had no duty of care to the homeowner. (Quoting Biakanja v. Irving (1958) 49 Cal.2d 647, 650 (Biakanja).) Taking into account the factors discussed in Biakanja v. Irving (1958) 49 Cal.2d 647, 650, the Court ruled that the general contractor failed to establish the absence of a duty of care. Significantly, the Court of Appeal distinguished the case of Weseloh Family Ltd. Partnership v. K.L. Wessel Construction Co., Inc. (2004) 125 Cal.App.4th 152. Weseloh is the case du jour for design professionals seeking to extricate themselves from lawsuits using a duty analysis. Whether this was by design or accident is uncertain but what is certain is that the California Supreme Court will weigh in on a design professional’s duty to third parties in the case of Beacon Residential Community Association v. Skidmore, Owings & Merrill, Supreme Court Case No. S208173.
On the heels of Burch, just one day later, the Second Appellate District handed down its decision in KB Home Greater Los Angeles v. The Superior Court of Los Angeles County, et al., confirming that if a party does not follow the SB 800 procedures, they can be thrown out of court.
In KB Home, plaintiff Allstate Insurance Company, on behalf of homeowner, brought an action against builder, KB Home Greater Los Angeles, Inc., for damages resulting from defects in plaintiff’s home. The Court of Appeal held that because plaintiff failed to comply with the notice requirements of the Right to Repair Act, depriving KB Home of its right to inspect and repair, the trial court erred in denying KB Home’s motion for summary judgment and the lower court ruling was to be vacated so as to grant KB Home’s motion for summary judgment.
The Court specified that whether tort common law was applicable was not the issue at hand (i.e., does Liberty Mutual apply?). Instead, the issue was whether the procedures outlined in the Right to Repair Act regarding notice were adequately followed. It was thereby determined that the failure to give timely notice and an opportunity for KB Home to inspect and offer to repair the construction defect excuses KB Home’s liability for damages under the Act.
The KB Home case is a nice victory for KB Homes, but it is overshadowed by the outcome in Burch, which is disappointing if not disturbing. For years, the construction industry (including the vast majority of plaintiffs’ lawyers) accepted the premise that the Right to Repair Act was the exclusive remedy except in situations involving breach of contract, fraud, or personal injury. Liberty Mutual and now Burch have changed the landscape. The construction industry gave up Aas 11 years ago for what it believed was a better deal under the Right to Repair Act. Now two different appellate courts have undercut the whole purpose of the Right to Repair Act. Yet, the Court’s decision in KB Home indicates that certain procedures from the Act must be followed. Ultimately, legislative action will be required to address these issues as well as other long-standing inadequacies of the Right to Repair Act.
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