United States: The California Supreme Court Weighs In On Residential Construction Defect Claims

In January of this year, the California Supreme Court finally decided the long-standing question of whether the “Right to Repair Act” (SB800) provides the sole remedy in California residential construction defect cases, or whether homeowners can also pursue common law remedies (such as strict liability, negligence, etc.) in McMillin Albany LLC v. Superior Court (2018) 4 Cal.5th 241.

The Court’s Answer: The Right to Repair Act, including its pre-litigation requirements, is the sole remedy for residential construction defect claims (except claims for breach of contract, fraud, and personal injury), subject to pre-litigation reasonableness considerations, where emergency situations make strict compliance infeasible. 

Historical Context: The Supreme Court’s recent decision provides needed clarity regarding the previously uncertain state of the law regarding homeowner’s construction defect claims. The “Right to Repair Act” arose, in part, in response to the California Supreme Court’s decision in Aas v. Superior Court (2000) 24 Cal.4th 627. In that case, the court ruled that homeowners were not allowed to recover under any tort theory (i.e. strict liability or negligence) for defects which had not yet caused property damage. The court ruled that under standard tort principles, no claim was ripe until the plaintiffs had actually suffered physical harm.

Following the court’s logic in Aas, homeowners could not sue for “life-safety issues” (such as missing fire stopping or electrical deficiencies) until the homeowner had been injured (i.e. they could not sue for issues creating a risk of fire until the fire had actually occurred). In response to this issue, and several others, the California Legislature enacted SB800 to write building “performance standards” into the California Civil Code. Under the statutory building standards, if a homeowner perceived an inadequacy in the construction of their home (whether or not it had caused any damage), they would not have to prove the existence of resulting damage, and would only need to show that the inadequacy violated one of the statutory construction standards. Under the legal doctrine of “negligence per se”, a plaintiff can simply establish that an act violates the terms of a statute in order to establish negligence. Thus, the SB800 construction standards provided homeowners with the requisite statute, and re-opened the door for most (and perhaps all) of the claims which had previously been barred by the court in its Aas decision. 

The SB800 legislation also imposed a pre-litigation procedure that homeowners must follow before they may file a complaint and pursue litigation in court. The legislation also provided a number of individual statutes of limitation specific to various building components and products. Before these specific statutes of limitation were created, construction defect claims had been governed largely by the general four-year statute for open and obvious (i.e. patent) problems, and the 10-year statute for hidden or concealed (i.e. latent) defects. SB800 also provided limitations on the scope of damages available to the homeowners. 

After the imposition of SB800, many in the construction defect arena felt that the scope of the SB800 legislation was so broad that it had effectively become a homeowner’s only remedy, subject to a few exceptions. Since the language in the SB800 legislation supports this view, homeowner plaintiffs were generally not allowed to seek recovery under any traditional negligence and strict liability theories, but instead were limited to claims and remedies available under SB800. In fact, some developers prevailed on dispositive motions which sought to remove all common-law causes of action in construction defect complaints, leaving only a single cause of action, alleging multiple breaches of the statutory construction standards.

Uncertainty arose, however, in late 2013 with the publication of Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98. The court in that case found that SB800 was not intended to be a homeowner’s sole remedy, but was one of several claims which could be plead by homeowners against the developers/builders of their home. The Liberty court held that plaintiffs could pursue remedies under both SB800 (which were governed by their unique statutes of limitation) and traditional common law tort theories, including and strict liability and negligence (which were governed by the older four-year and 10-year limitations periods). In McMillin Albany, the California Supreme Court specifically overruled Liberty Mutual Ins. v. Brookfield Crystal Cove LLC and once again affirmed the rule that homeowners are limited to claims for breach of the statutory construction standards in residential defect cases.

The Impact: In recent months, the California Supreme Court has dismissed review of several matters in light of its McMillin Albany decision. In at least one other instance, the court transferred a case to the Court of Appeal for reconsideration in light of this recent decision. Consequently, plaintiffs in pending cases may begin to voluntarily dismiss common law causes of action in their complaints. If they refuse do so, defendants now have a potent weapon with which they can seek a court order dismissing any and all common law causes of action plead in residential construction defect cases. Additionally, if plaintiffs have not completed the pre-litigation claim process which is required under the SB800 legislation before they may file a complaint, defendants will likely be successful in obtaining a stay of a pending case or outright dismissal of the complaint unless and until all claimed defects are investigated under the pre-litigation process, based upon the holding in McMillin Albany

McMillin Albany should also enhance the significance of statute of limitation defenses since, as mentioned above, the SB800 statutes provide individual statutes of limitation applicable to certain claims. Most of these limitations are shorter than the 10-year statue of repose that previously applied in construction defect matters (for instance, plumbing claims must be asserted within four years from the close of escrow. Civil Code § 896(e)). As a consequence, we may see construction defect matters brought soon after completion of the involved homes, since any delay could bar a homeowner’s claims based upon the SB800 limitation periods.

Because SB800 effectively limits homeowners’ construction defect claims, they will also have to follow the correct SB800 procedures before filing a complaint (providing notice and sufficient information about their claim, providing the defendants with an opportunity for investigation and repair, etc.). Once this process is complete and the matter proceeds into formal litigation, the statutory standards of construction continue to apply, which can also serve to limit the type of claim and amount of damages which homeowners are permitted to recover. The statutory standards are set forth in California Civil Code § 895. et seq. Significantly, however, homeowners may continue to pursue certain other claims beyond the reach of the SB800 statutes, such as claims for personal injuries, breach of contract, and fraud which are expressly excluded from SB800. 

In the long-running battle between construction defect claimants on the one hand, and the construction industry including developers, general contractors, subcontractors, and material suppliers on the other hand, the pendulum appears to have swung back to the builders’ side, restricting the nature and scope of claims which California homeowners are allowed to pursue. Lewis Brisbois lawyers will continue to monitor developments in the law and will update you on new statutes and cases as construction defect litigation continues to evolve.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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