Hart bought a newly constructed home developed and built by Brookfield. Several years later, a pipe in the home’s sprinkler system burst, causing flooding and significant damage. Brookfield acknowledged liability and repaired the damage. Hart’s homeowners’ insurer, Liberty Mutual, paid his hotel and relocation expenses incurred while he was out of the home during the repairs. Liberty Mutual later sued Brookfield in subrogation to recover those expenses. The trial court dismissed the case as time-barred under the Right to Repair Act, Civil Code section 895, et seq., because it was not brought within four years after close of escrow. The Court of Appeal reversed.
The court first looked at the history of the Right to Repair Act. Enacted in 2002, the Act established a mandatory process to manage residential construction defects prior to litigation. The Act set forth building standards, the violation of which constitute construction defects. Prior to litigation, homeowners must follow certain notification procedures and builders must inspect, test, and offer to repair the defects. The Act also prescribes statutes of limitations, affirmative defenses, and recoverable damages.
The Act sought to abrogate the 2000 decision in Aas v. Superior Court, in which the California Supreme Court held that construction defects in residential properties must cause actual property damage or injury prior to being actionable. The Act, by contrast, was intended in part to grant statutory rights where construction defects caused economic damage alone. The Act made major changes to the law governing construction defects, and sought to respond to builders and insurers concerned about litigation costs as well as giving homeowners the ability to have defects identified and corrected before they caused actual harm.
There was no question that the defective sprinkler pipe in Hart’s home was a component that would be covered by the Act. However, the court held, the Act did not eliminate the property owner’s common law rights and remedies where, as here, actual damage occurred as a result of the defect.
The court noted that the legislative intent of the Act was to provide for identification and repair of construction defects before they cause actual damage to the structure or its contents, not to provide the sole remedy to recover actual damages that have occurred as a result of construction defects. For example, provisions of the Act setting forth detailed timeframes for notification, inspection, and the offer to repair would not make sense in the case of actual damage requiring immediate attention and repair. Requiring exclusive compliance with the notice provisions of the Act under those circumstances would effectively extinguish the subrogation rights of homeowners’ insurers who promptly cover their insureds’ losses and later seek reimbursement. Nothing in the Act shows the legislature so intended.
In addition, unlike common law claims for actual damage, homeowners need not prove causation and damages to bring claims under the Act. The elimination of these basic elements of proof only makes sense where the defects have not yet caused actual damage.
Further, in creating the Act, the legislature did not repeal the existing limitations periods for construction defects, both patent (4 years) and latent (10 years), meaning those periods would still be in effect for use in litigation not brought under the Act.
Here, because Hart had common law remedies against Brookfield for the actual damage to the property, Liberty Mutual’s complaint in subrogation was not time-barred for failing to comply with the limitations period set forth by the Act.
Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) __ Cal.App.4th __, 2013 WL 4538693.