|
 | |
|
The Current Status of Construction Defects Law in California – An Overview
March 7, 2005
|
|
|
|
Thelen Reid Brown Raysman & Steiner LLP
The 2000 decision by the California Supreme Court in Aas v. Superior Court, 24 Cal. 4th 627 had a major impact on construction defect liability in California. The court announced a significant limitation on the scope of potential recovery by plaintiffs in construction defect actions, holding that there could be no tort recovery (negligence/strict liability) for construction defects that have not actually caused property damage, even when the defects violated provisions of the building codes intended to prevent harm to life, health and property.
The Aas court reasoned: "Construction defects that have not ripened into property damage, or at least into involuntary out-of-pocket losses, do not comfortably fit the definition of 'appreciable harm' - an essential element of a negligence claim.. The breach of a duty causing only speculative harm or the threat of future harm does not normally suffice to create a cause of action." The court concluded by stating it could not "justify a broad rule permitting recovery of repair costs unaccompanied by property damage or personal injury."
In the aftermath of the Aas decision, Senate Bill 800 was enacted. SB 800 applies to new construction intended to be sold as individual dwelling units, whether as single-family homes or attached units. New Civil Code §896 provides that a "builder" and other participants in the construction process shall be liable for violation of specified standards for new residential construction.
Subsequent decisions by the California Supreme Court and Courts of Appeal also have applied the Aas decision. The passage of SB 800 and these subsequent decisions afford an opportunity to evaluate the current status of liability for construction defects in California.
Aas placed considerable limits on the damages recoverable in tort for construction defects in California. Aas did not impact contract-based theories of recovery. Subsequent case law has placed further limitations on recoverable damages, clarifying that tort claims for defective construction must involve damage from the defects to "other work" and that damage which is the inevitable result of repairing the defective work probably does not qualify as "property damage." It is likely that the courts will provide further guidance on the scope of recoverable damages. The recent trend in California law has been to limit liability for construction defects. This trend may well continue until claims are governed by SB 800, which will be quite some time in the future.
Negligence Per Se
One of the biggest impacts of Aas was to drastically reduce the number of negligence per se claims. Under negligence per se, liability existed if the contractor failed to build in compliance with building codes or, more precisely, with standards set forth in building codes.
Before Aas, plaintiffs typically would include any violations of building codes in their list of claimed construction defects. This led to an amazing similarity in defect reports from project to project, with the usual characterization of such reports as "anything that can be wrong will be wrong." The Aas decision, with its rule of non-liability for defects not causing property damage, brought a change. For example, in several cases pending at the time of the Aas decision, the plaintiffs stopped pursuing recovery for pure "negligence per se" building code violations -- defects that were not also causing property damage. And, plaintiffs became far more diligent in pursuing contract-based theories such as breach of express and implied warranties to avoid the limitations on tort recovery.
With the passage of SB 800, negligence per se effectively is back in part. Under SB 800, liability exists if the builder fails to meet the standards set forth in SB 800, regardless of whether there is property damage.
However, SB 800 is limited to single-family residential construction (homes and condominiums). It does not apply to commercial or institutional buildings, including apartment complexes. For these types of projects, the rule of non-liability for construction defects not causing property damage still applies. Plaintiffs on these projects will be unable to simply list all building code violations and the costs to remedy them to prove up their construction defect actions.
The Continuing Significance of Aas and Decisions After It
SB 800 applies only to new residential construction sold after January 1, 2003. Given the 10-year statute of repose for bringing construction defect actions in Code of Civil Procedure §337.15 and the fact that the typical high stakes construction defect action on large condominium projects is brought 8 to 9 years after substantial completion of the project, SB 800 is not likely to have a significant impact on construction defect litigation for several years. Rather, for the next six or seven years, clarification of issues left unresolved by Aas will form the cornerstone of developments in California law on construction defects. Several court decisions since Aas have clarified issues.
Absence of Property Damage No Bar to Breach of Warranty Claims
In Hicks v. Superior Court, 89 Cal.App.4th 908 (2001), the court concluded that proof of breach of warranty does not require proof that the product malfunctioned but only that it contains an inherent defect that is substantially certain to result in malfunction during the useful life of the product.
The plaintiffs contended that the concrete foundations on a residential construction project included an inherently defective product, the use of which was substantially certain to lead to foundation failure. The court effectively held that the absence of current property damage did not bar the breach of warranty claim.
While the scope of liability on breach of warranty claims was not an issue in Aas, the Hicks decision is important. If a plaintiff is in privity of contract with the seller of the allegedly defectively constructed building, the plaintiff can assert breach of warranty claims for the building code violations, and the Aas decision will have no impact on such claims.
Property Damage to 'Other Work' Likely Is Necessary to Support Tort Claims
In Jiminez v. Superior Court, 29 Cal. 4th 473 (2002), the California Supreme Court held that manufacturers of defective windows installed in mass-produced homes may be subject to strict products liability. While the case is significant in extending strict liability to manufacturers of building materials, an important issue addressed in the decision was whether the defective work needed to cause damage to other work in order to be actionable. The Jiminez court, in dicta, suggested that it did, stating:
In summary, the economic loss rule allows a plaintiff to recover in strict products liability in tort when a product defect causes damage to "other property," that is property other than the product itself. The law of contractual warranty governs damage to the product itself. [Citations]. To apply the economic loss rule, we must first determine what the product at issue is. Only then do we find out whether the injury is to the product itself (for which recovery is barred by the economic loss rule) or to property other than the defective product (for which plaintiffs may recover in tort).
The defendant in Jiminez argued that the product was the entire house, not the windows in isolation, and because the only damage was to the product itself and not to any "other property," the economic loss rule barred recovery. The court rejected this argument, stating:
California decisional law has long recognized that the economic loss rule does not necessarily bar recovery in tort for damage that a defective product (e.g., a window) causes to other portions of a larger product (e.g., a house) into which the former has been incorporated.
Mesa Vista South Townhome Assn. v. California Portland Cement Co., 12 Cal.Rptr. 3d 863 (2004) (petition for review denied and ordered decertified August 11, 2004) also involved allegedly defective concrete foundations on single family homes. Plaintiff alleged that the concrete was vulnerable to the severe sulfate condition in the underlying soil and that this had caused microscopic damage to the concrete, which eventually would cause the concrete to disintegrate. The Court of Appeal held that this damage was sufficient to support the plaintiff's tort theories, stating:
In sum, in the case before us, not only is there present, nonspeculative harm, in the form of current submicroscopic damage to the concrete, there will be continued degradation of the foundations, possibly leading to the loss of structural integrity of the homes in later years.
The California Supreme Court refused to review this decision but also took the unusual step of ordering the case decertified, which means that the decision cannot be cited as authority. While it is difficult to speculate why the court ordered the opinion decertified, the Mesa Vista court went to great lengths to distinguish the language in Aas and Jiminez that appears to require property damage to other work to support tort claims for defective construction.
In the Mesa Vista case, there were two major problems with the plaintiff's claims: Only one work component was involved (the concrete) and the only damage was "microscopic" damage that might eventually lead to more serious damage. The Court of Appeal allowed the tort claims to proceed, but the Supreme Court, by decertifying the opinion, suggested that it did not agree with the Court of Appeal.
Contrast the decision in Mesa Vista with the decision in KB Home v. Superior Court, 112 Cal. App.4th 1076 (2003). The case involved tort claims by a developer against a furnace manufacturer to recover the costs of replacing allegedly defective furnaces. The key issue was whether the furnace was a single integrated product. If it was, then physical damage caused by the furnaces' allegedly defective emission control device to other components of the furnace would not constitute damage to "other property" within the meaning of the economic loss rule and the developer's tort claims would fail. The Court of Appeal ruled that this issue was a question of fact for the jury and reversed the judgment in favor of the furnace manufacturer.
In so doing, the KB Home court conceded that under Aas and Jiminez, there had to be damage to "other property" in order to recover in tort. The court noted that Jiminez "did not provide any direct guidance as to how" to determine whether there was damage to "other property." The court then provided the following criteria:
[W]e believe distinguishing between "other property" and the defective product itself in a case involving component-to-component damage requires a determination whether the defective part is a sufficiently discrete element of the larger product that it is not reasonable to expect its failure invariably to damage other portions of the finished product.
This "test" is not particularly precise, and it is likely that the standard for determining whether there has been damage to "other property" will be explored in later cases.
Damage to Other Work Caused by Remedial Work May Not Qualify as 'Property Damage'
The decision in Carrau v. Marvin Lumber and Cedar Co., 93 Cal.App.4th 281 (2001) may further reduce the potential liability of developers, contractors and subcontractors for construction defects in California.
The plaintiff bought 50 Marvin windows and installed them in his luxury home. Within three or four years after completion of the house, problems arose with the windows. At least one window was leaking, causing minor damage to wallpaper, drywall and stucco.
The plaintiff determined that all of the windows needed to be replaced. It was undisputed that replacement of the windows also would require other work, such as removal and restoration of landscaping, replastering, restoring interior faux painting finishes that would be damaged by the repairs and related work. Plaintiff obtained bids in the range of $450,000 to replace the windows and perform the related work.
The plaintiff ultimately sold the residence for $5,250,000 and agreed to credit the purchasers with $426,000 to cover the costs of installing the replacement windows and related work. The seller sued Marvin, including for strict products liability.
The court overturned the jury verdict of $350,000 for strict products liability. Although the court acknowledged that "effecting repairs to the windows would cause damage to sheet rock, stucco and landscaping," it noted that the only evidence of actual property damage to property other than the defective windows was a few hundred dollars worth of damage to sheet rock and wallpaper. And, it noted that the plaintiff did not pay the costs of repairing that damage -- the purchaser of the house paid for it.
The court's analysis may reflect a view that collateral repair costs do not constitute "property damage," which would be a significant limitation.
Carrau also held that the plaintiff could not recover damages based on diminution in value to the residence resulting from installation of defective windows, stating:
[W]hen the value of the home was diminished by the use of Marvin's products, [the plaintiff] lost an economic benefit. He is not entitled to recover that benefit on a theory of products liability.
Carrau may be authority that no tort recovery is allowed for the cost of repairing collateral damage necessarily caused in repairing construction defects and suggests that recovery of the cost of getting to the defects also is barred, at least in the absence of significant resulting damage actually caused by the construction defect.
Owner Who Suffered Economic Injury Has Standing to Sue for Construction Defects
Siegel v. Anderson Homes, 118 Cal. App. 4th 994 (2004) addressed the issue of standing to assert construction defect claims. The lawsuit alleged that the plaintiffs bought homes that contained numerous defects, including structural damage, that they discovered only after having purchased the homes. The trial court granted a motion to exclude evidence of the defects on the ground that the defects gave rise to causes of action to the original owners and that, absent assignment of rights by the original owners, the plaintiffs lacked "standing" to bring the action.
The Court of Appeal reversed, essentially holding that the subsequent purchasers did have standing to assert the construction defect claims, stating:
The answer seems to be that the cause of action belongs to the owner who first discovered, or ought to have discovered, the property damage. It is only then that some entity capable of maintaining a legal claim will have suffered a compensable injury, e.g., the cost of repair and/or the loss in the property's value (inasmuch as the owner then has a duty to disclose the damage to potential buyers).
If you would like to receive legal reports and updates more quickly, by e-mail, click here and fill out the mailing list form.
For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-369-7229 or at pwberning@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2005 Thelen Reid Brown Raysman & Steiner LLP
|
| | |
