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IS COMPLIANCE WITH THE RIGHT TO REPAIR ACT REQUIRED BEFORE A CONSTRUCTION DEFECT LAWSUIT IS FILED AGAINST THE BUILDER FOR PROPRETY DAMAGE: THE COURT OF APPEAL IS SENDING CONFLICTING MESSAGES.

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Last year, the California Court of Appeal held that an insurance carrier exercising its subrogation rights WAS NOT REQUIRED to give notice of a claim to a builder before suing the builder for defective workmanship that caused property damage to the insured.  See Liberty Mutual Insurance Co. v. Brookfield Crystal Cove LLC, 219 Cal App 4th 98 (2013).  Many Construction Defect (“CD”) practitioners interpreted this decision to mean that so long as a CD lawsuit (any CD lawsuit) was predicated upon property damage, the claimant was not first required to comply with the Right to Repair Act (aka SB 800) before filing suit.  There were numerous scholarly articles written in support of this interpretation of the Liberty Mutual decision.

This year, the California Court of Appeal held that an insurance carrier exercising its subrogation rights WAS REQUIRED to give notice of a claim to a builder before making repairs and suing the builder for defective workmanship that caused property damage to the insured.  See KB Home Greater Los Angeles, Inc. v. Superior Court, 168 Cal. Rptr. 3d 142 (2014).  Interestingly, the KB Home case got to the Court of Appeal, because the trial court entered an order that said that the builder was not entitled to notice and an opportunity to make repairs before being sued for property damage arising out defective workmanship.  The trial court based its order on the Liberty Mutual decision, which gives further credibility to the aforementioned position taken by many CD practitioners:  so long as the CD lawsuit is based upon the existence of property damage, compliance with the Right to Repair Act is not required.  

The KB Home decision has created uncertainty in the CD arena of law in that the Court of Appeal did not expressly overrule the Liberty Mutual decision.  The Liberty Mutual decision is still good law!

Instead, the Court of Appeal in the KB Home decision distinguished Liberty Mutual from KB Home.  The Court of Appeal held that KB Home was different from Liberty Mutual because in Liberty Mutual the builder was allowed to repair the damaged home before the carrier filed its CD lawsuit.  Thus, the builder got the benefit of the Right to Repair Act in the Liberty Mutual case.   Whereas in the KB Home case, the builder did not get the right to repair or receive notice before it was sued by the carrier.

This distinction is factually accurate, but ignores the legal premise of the Liberty Mutual decision.  The Court of Appeal held in Liberty Mutual that so long as the CD lawsuit arose out the existence of property damage, the Right to Repair Act did not apply.  This is still the law of the land until Liberty Mutual is expressly overruled.

The application of the Right to Repair Act is uncertain and confusing from a practical standpoint.  As a result, it is a good idea to contact a CD attorney before repairing defects, even in an emergency situation, such as a flood caused by a pipe leak.  If you have any questions about your rights and obligations with respect to CD claims and lawsuits, please do not hesitate to contact the Law Office of Michael A. Hearn at (949) 341-0030 or mike@mhearn.com.