By: Kyle D. Kring
On January 18, 2018, the California Supreme Court issued an extremely important ruling for the residential construction industry in McMillin Albany LLC v. Superior Court, No. S229762 (Cal. Jan. 18, 2018). The state high court held that S.B. 800 (commonly known as the “Right to Repair Act”) is the exclusive remedy not just for economic loss, but also for property damage, arising from construction defects in original construction, stand-alone homes. In so holding, the Court found that the Legislature clearly and unequivocally intended to reshape the rules governing construction defect actions when it enacted S.B. 800.
S.B. 800 requires parties to engage in an informal process that begins with written notice from the homeowner to the builder of the allegations that the construction falls shorts of the standards required by the Right to Repair Act. The builder then has a right to inspect, test, and cure the alleged defects or to pay the homeowner compensation in lieu of making repairs. If the homeowner goes outside of these procedures in bringing a civil action, the builder can move the court for a stay of that action until the homeowner has complied with these requirements.
The Court’s ruling in McMillin Albany is so important to the industry because it resolved a split in authority among California’s appellate courts as to the exclusivity of the remedy provided in S.B. 800 when a party’s claims involve actual property damage, rather than solely economic damages. The conflicting rulings by the Fourth and Fifth Appellate Districts had left builders in a state of uncertainty as to the best way to handle these claims from homeowners.
In handing down its ruling, the Court removed all such doubt and expressly disapproved the Fourth District’s Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC, 219 Cal.App.4th 98 holding that S.B. 800’s pre-litigation requirements only applied when the homeowner explicitly alleged a cause of action for violation of the Right to Repair Act. There remains no question now that homeowners do not have the option to pursue remedies under both the Right to Repair Act and common law claims for property damage.
While the Court’s ruling left some uncertainty as to how a homeowner should proceed when the damage to the home requires emergency action, the Court made perfectly clear that even in those situations, their attorneys cannot circumvent the pre-litigation requirements of S.B. 800 by carefully crafting their constructive defect complaints to plead property damage.
With S.B. 800 clearly established as the exclusive remedy governing these actions, it is more important than ever for builders to understand the Right to Repair Act’s intricate requirements. S.B. 800 contains several protections for builders, including limitations on damages, defense obligations, and indemnity claims under wrap-up policies. However, it also imposes several deadlines and obligations on the builder in responding to a homeowner’s statutory notice. Contact Kyle D. Kring to see what impact this decision may have on your business and to establish a plan for responding to S.B. 800 notices moving forward.
Kyle D. Kring is a Partner of Kring & Chung, LLP. He can be reached at (949) 261-7700 or [email protected].