California's Right To Repair Act In The Spotlight Again
Construction Law E-Alert (February 2014)The first decision, Burch v. The Superior Court of Los Angeles County (Premier Homes LLC) (Feb. 19, 2014, No. B248830) __Cal.App.4th __ [2014 WL 640707] ("Burch"), addresses whether the Right to Repair Act provides the exclusive remedy for a homeowner seeking damages for construction defects. The second decision, KB Home Greater Los Angeles, Inc. v. The Superior Court of Los Angeles County (Allstate Insurance Co.) (Feb. 21, 2014, No. B246769) __ Cal.App.4th __ [2014 WL 667368] ("KB Home"), addresses whether an insurer pursuing a subrogated claim is required to follow pre-litigation procedures under the Right to Repair Act.
In Burch, the Court of Appeal reversed an order granting summary adjudication in favor of the developer, contractor, and their principals on grounds that the Right to Repair Act does not provide the exclusive remedy for a homeowner seeking damages for construction defects resulting in property damage. The Court also concluded that a homeowner may bring negligence and implied warranty claims directly against the general contractor and principals on a third party beneficiary theory; under long-standing precedent which held an intended beneficiary of a contract may sue despite a lack of privity. And, while Burch may appear novel, the decision is merely a confirmation of the recent Fourth Appellate District decision in Liberty Mutual Insurance Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98 ("Liberty Mutual"), and other existing precedent.
In KB Home, the failure to follow pre-litigation procedures in the Right to Repair Act is fatal for insurance carriers seeking recovery in subrogation. Allstate's insured purchased a residence from KB Home in 2004, and experienced a water leak in 2010. Allstate paid for the repairs, subrogated the claim, and sued KB Home for construction defects. KB Home moved for summary judgment since Allstate failed to follow the pre-litigation procedures outlined in the Right to Repair Act. The trial court denied KB Home's motion, but granted a motion by Allstate summarily finding KB Home violated the Right to Repair Act. KB Home filed a writ petition seeking to overturn the trial court's decision. Siding with KB Home, the Court concluded that the failure to follow pre-litigation procedures in the Right to Repair Act was fatal, and directed the trial court to grant KB Home's summary judgment motion. The Court, however, was careful to distinguish Liberty Mutual since the appeal proceeded under a Right to Repair Act cause of action only.
While Burch is not novel, it highlights the disturbing shift in the courts away from enforcing the Right to Repair Act as a sole remedy. And, while KB Home is a victory for developers, it remains unclear whether the courts will enforce pre-litigation procedures in cases proceeding under both the Right to Repair Act and common law claims. Ultimately, legislative action is needed to address these issues.