Where a residential home builder’s sales contract included a right-to-repair addendum based on a “Right to Repair” statute, an insurer who arranged for repairs of water damage to an insured’s property before notifying the builder was barred from pursuing a subrogation action against the builder. ( KB Home Greater Los Angeles, Inc. v. Superior Court (2014) 2014 WL 667368)
Facts
Dipak Roy purchased a new home from KB Home Greater Los Angeles, Inc., a builder. The purchase agreement Roy signed included a right-to-repair addendum that was based on the “Right to Repair Act” set forth in Civil Code section 895 et seq. The addendum outlined the pre-litigation procedures of the Right to Repair Act and listed KB Home’s corporate address, where notices of defect claims were to be sent. The limited warranty agreement allowed for telephone notice in cases of emergency, to be followed by a reasonably-timely written warranty claim.
A property manager discovered a water leak in Roy’s house, which was vacant at the time. The property manager shut off the water and called Roy, who in turn called his insurer, Allstate Insurance Company. A mitigation company removed excess water, as well as some water-damaged dry wall and carpet. Allstate inspected the property and paid for repairs of the home within the next few months. About one month after repairs were completed, Allstate sent KB Home a notice that Allstate intended to pursue subrogation to recover the payments made to the insured, Roy. KB Home did not respond.
Eventually, Allstate filed a complaint in subrogation against KB Home. After a lengthy battle regarding the sufficiency of the pleadings, Allstate filed an amended complaint that advanced a single cause of action for property damage based upon defective construction, as defined in the Right to Repair Act.
Eventually, KB Home filed a motion for summary judgment based on Allstate’s failure to give KB Home timely notice (under the Right to Repair Act) to allow KB Home to repair the defect. However, Allstate filed its own motion for summary judgment, asserting that KB Home had violated building standards set forth in the Right to Repair Act and was statutorily liable for damages, and further arguing that, in the event of actual resulting damage (such as the water damage that had occurred), the Right to Repair Act did not require notice to the builder before repairs began. The trial court granted Allstate’s motion for summary judgment. KB Home sought review by the Court of Appeal.
Holding
The Court of Appeal reversed. It held that at least where an owner (or an owner’s insurer in a subrogation action) files suit against a builder based solely on the theory that, when constructing an improvement, the builder violated standards set forth in the Right to Repair Act, the owner (or insurer) must allege and prove timely notice to the builder. Here, the appellate court concluded that Allstate’s admitted failure to contact KB Home until after repairs were completed was fatal to Allstate’s cause of action under the Right to Repair Act, and that KB Home was therefore entitled to summary judgment. The appellate court further held that even “catastrophic” damage cannot be an excuse to deprive a builder of its statutory right to receive timely notice of a defect, to inspect the property, to offer to repair the defect and to compensate the homeowner.
Comment
The Right to Repair Act applies to the original construction of individual homes sold after January 1, 2003. It provides definitions; describes actionable construction defects by setting forth standards for residential construction; requires the builder to provide an express limited warranty covering the fit and finish of specified building components; addresses the builder’s obligations if the builder offers greater protection to the homeowner through an enhanced protection agreement; sets forth a pre-litigation procedure designed to give a builder the opportunity, before litigation commences, to repair defects brought to its attention by a homeowner’s claim; and sets forth standards for litigation, such as the deadline for filing a lawsuit, the burden of proof, damages that may be recovered, and defenses the builder may assert.
The Right to Repair Act further requires an owner to provide a written notice of a violation of any of the building standards, and sets forth a detailed set of procedures that is to follow the written notice. Among other things, the Right to Repair Act gives the builder an opportunity to inspect and test, and provides for mediation, a repair offer or a cash offer. The owner can be released from this pre-litigation procedure and may file a lawsuit if the builder does not acknowledge receipt of the owner’s notice; elects not to go through the procedure; fails to request an inspection; fails to make an offer to repair; makes a cash offer that the homeowner rejects; does not complete the repair in time; or does not comply with other statutory timeframes.
Here Allstate’s case against KB Home was based on KB Home’s failure to construct the house in accordance with the requirements of the Right to Repair Act. Thus, when Allstate sought recovery for the defect, KB Home successfully argued that Allstate’s repair of the defect and the resulting damage beforegiving notice to KB Home precluded Allstate from recovering damages through subrogation. This case appears to leave open the possibility that an owner (or insurer) that is seeking to recover under othertheories (e.g., common law negligence or strict liability) might not be bound to the notice requirements set forth in the Right to Repair Act.