Right to Repair Act Defense Rejected in California Subrogation Cases

Christmas has come early for the California subrogation community! A recent decision from the Court of Appeals has held that the 2002 “Right to Repair Act” (aka SB 800) does not apply to cases in which a property owner has suffered actual damages. In a well-reasoned opinion, the court in Liberty Mutual Insurance Company v. Brookfield Crystal Cove, LLC concluded that the “Right to Repair Act” was only intended to provide remedies where construction defects have negatively affected the value of a home not where actual property damages have occurred.

The underlying case arose from a broken sprinkler system pipe causing damage to a new home. The developer accepted liability for the loss and paid for the repairs, but declined to pay for the hotel and relocation costs incurred during the repairs. After Liberty Mutual paid those expenses and subrogated, the trial court sustained the developer’s demurrer (California’s version of a motion to dismiss) on the grounds that the action was time-barred under the “Right to Repair Act.”

In reversing the lower court, the Court of Appeals carefully analyzed the legislative history of the “Right to Repair Act.” The Brookfield court correctly noted that the “Right to Repair Act” had been enacted to abrogate the Aas v. Superior Court (2000) 24 Cal. 4th 626 decision. Plaintiffs in Aas were seeking various forms of damages, including diminution in value of their property due to construction defects. That Supreme Court case held that construction defects, in the absence of actual property damage, were not actionable in tort. Essentially, the “Right to Repair Act” permitted the legislature to “overrule” what was deemed to be an imprudent Supreme Court decision-i.e. if it isn’t broke, the homeowner shouldn’t fix it!

However, since the enactment of the Right to Repair Act, it has often been raised as a defense to subrogation claims. Since the Act precludes common law causes of action, provides a shorter statute of repose, and imposes critical notice requirements before a claim can be made (including an opportunity to allow the builder to repair the defect), defendants have used the Right to Repair Act to argue an otherwise valid subrogation claim must be dismissed. Some trial courts, including the lower court in Brookfield, sided with developers in dismissing these subrogation actions. Fortunately, the Court of Appeals in Brookfield concluded that, contrary to the developer’s contention, the “Right to Repair Act” does not provide an exclusive remedy to homeowners. Common law actions for construction defects survive that Act. Further, the Act does not abrogate the four-year patent defect and ten-year latent defect statutes of limitation. Subrogation professionals should review their cases wherein the Right to Repair Act was raised as a defense and advise defense counsel that the Right to Repair Act defense as to subrogation claims is no longer valid.

 

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