Court of Appeals Interprets SB 800 Time Limitations as Inapplicable Where Actual Damage is Alleged to Have Occurred

By: Paul T. McBride

California's Right to Repair Act, set forth at California Civil Code Sections 895-945.5, and commonly referred to as "SB 800," allows homeowners to recover the cost to repair certain specified construction defects even though no actual damages have yet occurred because of the defects.  SB 800 was enacted in 2002 in response to the California Supreme Court's decision is Aas v. Superior Court, (2000) 24 Cal.4 th 627.  In Aas, the Court held that construction defects in residential properties which have not caused actual damage are not actionable in tort.  SB 800 overturned this decision by providing a statutory mechanism for recovery for construction defects even though they have not yet caused any actual damage.

SB 800 provides standards for construction of various building components.  It also provides time limits for bringing actions.  The time limits vary according to the component or trade.  If a specific time limit is not provided for a particular standard, the default time limit for bringing a claim is 10 years from notice of completion, per Civil Code Section 941(a).  This is the same time limit as set forth for bringing a construction defect claim for a latent defect under C.C.P. 337.15.

Plumbing and sewer systems are covered in SB 800 at Civil Code Section 896(e), which provides, "Plumbing and sewer systems shall be installed to operate properly and shall not materially impair the use of the structure by its inhabitants.  However, no action may be brought for violation of this subdivision more than four years after close of escrow."

In a recent case, Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98, the Court of Appeals held that an action to recover damage from defective plumbing is not subject to the four year plumbing statute of limitations set forth in SB 800 if actual damage has occurred because of the plumbing defect.  Rather, the Court ruled that the four year statute only applies where an alleged defect in the plumbing has not yet caused actual damage.  In reaching this decision, the Court reasoned that SB 800 did not abrogate prior remedies available for property damage caused by construction defects.

In Liberty Mutual, the homeowner purchased a residential home in Orange County from Brookfield Crystal Cove LLC ("Brookfield.")  The close of escrow date was in November, 2004.  In January, 2008, a fire sprinkler pipe in the home burst, causing substantial damage.  The homeowner moved into a hotel while Brookfield made repairs.  The hotel bills were not paid by Brookfield, but rather were paid by the claimants' homeowners' insurance company, Liberty Mutual Insurance.  In August, 2011, nearly seven years after the close of escrow, Liberty Mutual filed suit against Brookfield in subrogation to recover the hotel bills it paid on behalf of the homeowner.  Brookfield demurred, claiming that the action was time-barred, as SB 800 requires claims relating to plumbing to be brought against the builder or developer within four years of the close of escrow date.  The trial court agreed and granted Brookfield's demurrer.

On appeal, the Court of Appeals overturned the trial court's determination that Liberty Mutual's claim was subject to the four year statute of limitations provided for plumbing claims in SB 800.  The Court reviewed the legislative history of SB 800, which clearly showed that it was enacted specifically to overrule the Aas decision holding that no recovery is allowed for construction defects unless property damage has occurred.  SB 800 now allows recovery for defects even though no damage has occurred, provided that the claim is made within the time limits specified in SB 800.  However, where actual damage is alleged to have occurred because of the defective condition, the SB 800 time limits do not apply.  In those instances, the time limit to bring the claim is the time limit that would have applied prior to the enactment of SB 800.  Since the home was built in 2004, the pipe burst in 2008 and the lawsuit was filed in 2011, the claim was timely under either the four year statute of limitations for construction defect actions based on patent construction defects, C.C.P. section 337.1 (measured from the date of discovery of the defect,) or the ten year statute of limitations for construction defect actions based on latent construction defects set forth at C.C.P. 337.15 (measured from the notice of completion.)

The Court of Appeals could have upheld the claim by reference to the time limits in SB 800 itself, had it chosen to do so.  While Civil Code Section 896(e) limits plumbing claims to four years from close of escrow, Civil Code Section 896(a)(14) provides that "the lines and components of the plumbing system, sewer system, and utility systems, shall not leak."  This standard is subject to the ten year statute of limitations.  Since the homeowner's claim in the case arose from a burst plumbing pipe, there is no reason the ten year statute of limitations for Section 896(a)(14) claims could not have been applied.  However, the trial court did not mention this section, and the appellate court noted it only in a footnote.

For construction defect practitioners, it is important to be aware of the time limits imposed by SB 800 for various building components.  In many instances, such as plumbing, the time limits will be significantly shorter than the 10 year time limit provided for latent construction defects under C.C.P. 337.15.  However, in light of the Liberty Mutual case, it is clear that the shorter time limits set forth in SB 800 only apply where the alleged defect has not caused damage.

Paul T. McBride is a Partner with Kring & Chung, LLP's Sacramento, CA office.  He can be contacted at (916) 266-9000 or pmcbride@kringandchung.com .