CONSTRUCTION LAW: Elliot Homes Decision Casts Further Doubt on the Viability of the Liberty Mutual Decision

We previously discussed how the Fourth Appellate District's decision in LibertyMutual Insurance Company v. Brookfield Crystal Cove (2013) 219 Cal.App.4^th 1194 held that the California Right to Repair Act (S.B. 800 – Civil Code Section 895 et seq.) was not an exclusive remedy for residential construction defect cases where tort liability arising from actual damage was found. After the Second Appellate District followed the Liberty Mutual decision in Burch v. Superior Court (2014) 223 Cal.App. 4^th 1411, it appeared settled that homeowners would be able to pursue both statutory and common law tort claims and could escape the notice requirements, statutes of limitations, and damage limitations imposed by the Right to Repair Act by solely pursuing common law tort claims. However, in McMillin Albany v. Superior Court (2015) 239 Cal.App.4th 1132, review granted November 24, 2015, S229762, the Fifth Appellate District rejected the Liberty Mutual holding, finding that the Liberty Mutual court had failed to fully analyze the language in Civil Code Sections 896, 897, and 943. Consequently, the court held that the Legislature did intend that all claims arising out of residential construction, involving new residences sold on or after January 1, 2003, be subject to the standards and requirements of the Act.

The Third Appellate District has now issued a decision in line with the McMillin decision, holding that a homeowner must comply with the Act's notice provisions even in actions in which the plaintiff has not alleged a violation of the Act's performance standards. In Elliott Homes, Inc. v. Superior Court (December 2, 2016) California Court of Appeal, Third Appellate District, Case No. C078122, plaintiffs filed suit against the developer of their homes for alleged deficiencies in their construction. Plaintiffs' complaint, however, did not include any allegations concerning a violation of The Right to Repair Act, but, rather, only alleged common law tort actions. The developer sought to stay Plaintiffs' complaint until Plaintiffs complied with the Act's pre-litigation procedures. Plaintiffs opposed the motion on the grounds that their complaint did not include a cause of action under the Act and, therefore, compliance with those procedures was not required. Relying on the Liberty Mutual decision, the trial court agreed.

When considering the developer's writ petition, the Third Appellate District rejected the trial court's reliance on Liberty Mutual, holding that the Act and its pre-litigation procedures applies to any suit to recover damages for construction defects in residential construction falling within the purview of the Act. The court based its holding upon the language and intent of the Act, concluding that a homeowner must comply with the notice provisions in the Act. Absent such compliance, the court found that a developer could stay a lawsuit, even one which did not allege any violation of the Act. While the issue of whether compliance with the pre-litigation procedures was the only issue before it, the court in dicta indicated clearly its position that the Liberty Mutual court reached the wrong decision on the issue of whether the Act provided the sole remedy for construction defect claims for residential construction involving new residences sold on or after January 1, 2003.

The decision in Elliott Homes provides further hope that the California Supreme Court will overturn the decisions in Liberty Mutual and Burch when ruling upon the appeal in McMillin. In the interim, the Third Appellate District's decision to certify the Elliott Homes decision for publication gives the construction industry a decision to which to cite when countering homeowners who bring actions relying upon the decisions in Liberty Mutual and Burch.