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Logo Icon Second Appellate District Rules for Developer on Right to Repair Act Notice Argument

Recently, builders have endured a recent string of critical appellate decisions which have eroded builders' rights under the California Right to Repair Act. Decisions such as Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC (2013) 219 Cal. App. 4th 98 and Burch v. Superior Court, (February 19, 2014) California Court of Appeal, Second Appellate District, No. B248830 have resulted in the elimination of the Act as the primary, and in most cases sole, remedy for residential construction defect in California.

However, in KB Home Greater Santa Clarita, Inc. v. Superior Court (February 21, 2014) California Court of Appeal, Second Appellate District, No. B246769, the Fourth Division of the Second Appellate District granted the builder's petition for a writ of mandate, directing the trial court enter an order granting the builder's motion for summary judgment on the basis that the homeowner and his insurance company had failed to comply with the notice provisions of the California Right to Repair Act (S.B. 800 B Civil Code Sections 895 through 945.5).

The homeowner had purchased the home from the builder in 2004. In March 2010, the homeowner's property manager discovered a leak in the home, which was vacant at the time. The homeowner contacted his property insurer who inspected the property in April 2010 and subsequently repaired the property in June 2010. At no point during this time period did the homeowner or his property insurer place the builder on notice of the defect and damage.

In July 2010, the property insurer wrote the builder, stating that it intended to pursue a subrogation claim against the builder for the loss at the property. In November 2010, counsel for the insurer made a demand on the builder to settle the claim. The builder did not respond to this demand.

In March 2011, the property insurer filed suit, seeking subrogation for the loss and asserting claims for negligence, breach of implied warranty, and strict liability. In July 2011, the trial court sustained the builder's demurrer to the complaint with leave to amend on the ground that the property insurer had not alleged compliance with the pre-litigation procedures of the Act. The property insurer then filed an amended complaint alleging a sole cause of action for violation of the Act. The builder demurred to the amended complaint on the ground that the property insurer had failed to serve a notice of claim as required by the Act. The trial court issued a nunc pro tunc order reviving the initial complaint in lieu of ruling on the demurrer and overruled the prior demurrer to the original complaint. The trial court ruled that the Act did not apply to the property insurer's subrogation action. The builder filed a petition for writ of mandate to that ruling, and the appellate court issued an alternative writ directing the trial court to vacate the nunc pro tunc order and to consider the demurrer to the amended complaint. The trial court did this, sustaining the demurrer with leave to amend.

In March 2012, the property insurer then filed a second amended complaint which combined the causes of action of the two prior complaints. The trial court then overruled the builder's demurrer to that complaint, ruling that the Act did not apply to subrogation actions. On the builder's second writ petition, the appellate court issued another alternative writ, directing the trial court to sustain the demurrer to the negligence and strict liability action and overrule the demurrer to the cause of action under the Right to Repair Act.

The builder then filed a motion for summary judgment on the cause of action under the Act, the cause of action for breach of implied warranty having been voluntarily dismissed. The builder argued that the property insurer had failed to give notice of claim as required by Civil Code Section 910, which is an enumerated affirmative defense in Civil Code Section 945.5. In January 2013, the trial court denied the builder's motion, finding that the property insurer's letters in July and November 2010 substantially complied with the Act's notice provisions and that the builder lost its right to repair under the Act when it failed to respond to those letters. The builder filed a third writ petition, challenging the trial court's ruling. The appellate court issued another alternative writ directing the trial court to grant the builder's motion for summary judgment. In light of the decision in Liberty Mutual Insurance Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal. App. 4th 98, the trial court refused, and review was granted.

The court noted that the property insurer's argument that the Liberty Mutual decision rendered the ruling on the summary judgment motion moot was ignored because the matter was not part of the writ petition before the court. The court noted that the property insurer could raise that issue on appeal from the final judgment.

Rather, the court focused upon whether the property insurer or the homeowner complied with the notice requirements of Civil Code Section 910, which requires that the builder be given notice of the defect before the repairs are made. The property insurer argued that Section 910 did not expressly require that notice be given before repairs are made. The court, however, reasoned that Section 910 cannot be read in isolation and that to give effect to the entire pre-litigation procedure under the Act, notice would have to be given before the repairs were made. Indeed, the court found that the insurer could not reasonably argue that notifying a builder of a defect months after it had been repaired substantially complied with Section 910 and the Act. The court held that failure to give the builder timely notice and an opportunity to inspect and offer repair to the defect excused the builder's liability under the Right to Repair Act. The court directed the trial court to vacate its prior order and to enter an order granting the builder's motion for summary judgment.

The decision in KB Home is important for two reasons. First, it provides a clear indication that the lack of notice to a builder is fatal to a claim under the Right to Repair Act. Second, the court's invitation to the property insurer to appeal the ruling on the negligence and strict liability claims after final judgment is entered may be an attempt by the court to obtain a means to issue a ruling contrary to the rulings in Liberty Mutual and Burch v. Superior Court, (February 19, 2014) California Court of Appeal, Second Appellate District, No. B248830. That potential offers residential developers and builders a glimmer of hope after the negative rulings in Liberty Mutual and Burch.

Please note that the KB Home decision is not yet a final ruling and has not yet been designated for publication. We will continue to monitor this decision and keep readers updated with the status of this case.