SB 800 – Fact or Fiction?

Senate Bill (SB) 800, now codified as Civil Code § 895, et seq. (“SB 800”), was supposed to revolutionize construction defect litigation. Approved by the California Legislature and signed into law on September 20, 2002, SB 800 promised to give construction contractors the “Right To Fix” claimed construction defects, rather than being launched into litigation. The law applies to sales of new home units beginning on January 1, 2003.

Now, seven years after it became law, SB 800 cases are starting to show up with regularity on more and more construction trade Office Manager’s desks. Often the first warning a subcontractor has of a claim is a letter from the owner/developer’s counsel, demanding indemnity and defense pursuant to a subcontract, notifying of visual inspections in three weeks, and enclosing the “Notice of Construction Defect Claims” Plaintiffs’ counsel previously sent to the Builder to satisfy Civil Code § 910.

The plain fact is that SB 800 as it became law does not give subcontractors the right to repair. Civil Code § 895, and the SB 800 code sections that follow it, provide for a schedule of events by which Plaintiffs’ counsel and counsel for the owner/developer of a particular project “try” to agree to the Builder’s proposed repair. Section 916(e) provides that the Builder must provide notice to the subcontractor or design professional responsible for its contribution to the alleged “unmet standard.” There is a process by which the Builder makes repair offers to the Plaintiffs, without a provision that the subcontractors participate in the preparation of the repair proposals. And a Builder is not released by Plaintiffs after completing repairs, a significant disincentive for Builder to actually repair.

Things being as they are, the trade subcontractors are often nevertheless pulled along for the SB 800 ride. They attend visual inspections themselves, taking time away from their own businesses. They may try to attend mediations themselves, without their insurer or counsel, and find themselves sitting in a conference room with others like them, commiserating, telling stories, and perhaps just wasting their time because Plaintiffs and the Builder have no intention of settling, or agreeing to repairs by anyone.

Not every SB 800 litigation is proceeding this way, but many are. Ultimately, Plaintiffs routinely refuse the repair offers made by the Builder. Plaintiffs’ counsel really does not have a great interest in having his clients’ defect allegations repaired, unless he plans on being paid in chickens or eggs. Builder’s counsel knows that even if he does reach a repair or cash settlement with Plaintiffs, he is going to turn around and sue the subcontractors for indemnity, all the while incurring fees and costs that he will try to pass on to the subcontractors.

But the situation is not necessarily as bad as all that. There are significant additional reasons why subcontractors should seek out experienced and savvy construction litigation counsel, such as Kring & Chung, early in the SB 800 process. Some of these are the following:

• As more subcontractors move into insurance policy terms that feature Self-Insured Retentions, and other restrictive provisions, there is a tangible benefit to having counsel versed in analyzing and obtaining appropriate insurance coverage;
• It may be possible to satisfy a single SIR as to several claims or cases, depending on a subcontractor’s contract language with its insurer;
• Because subcontractors do not always turn SB 800 claims over to their insurers immediately, the Builder may obtain an agreement from Plaintiffs to sue the subcontractors even before the formalities of SB 800 have been met;
• Experienced counsel familiar with the nuances of construction defect law are more likely to be responsive and cost effective for subcontractors; and
• Early participation of counsel, even in SB 800 cases, prevents the possibility of Entry of Judgment against a subcontractor. The days when a subcontractor might ignore litigation, allow default to be taken against them, and ignore paperwork and attempted contacts, appear to be over. Aggressive Plaintiffs’ counsel are now obtaining Judgments against non-participating subcontractors. Depending on the particular status of the subcontractor, this can unfavorably result in a Court Order to pay damages, without legal representation of the trade.

Kring & Chung is available to answer any questions you have regarding SB 800, and all construction defect issues and claims.

Brendan J. Coughlin is an Associate with Kring & Chung, LLP‘s Irvine, CA office. He can be contacted at (949)-261-7700 or bcoughlinat-sign kringandchung DOT com.