Civil litigation attorneys often talk about “damages.” Because without damages . . . well . . . you’re out of luck.
But damages come in different flavors. In construction litigation, when it comes to defective construction, there are two basic flavors: actual damages and economic damages. Actual damages include property damage and personal injury, such as a defective roof that causes water damage into the interior of the structure or collapses causing injury to someone inside the structure. In contrast, economic damages would be the cost to repair or replace the defective roof, without any resulting property damage or personal injury.
In Aas v. Superior Court (1998) 64 Cal.4th 916, the California Supreme Court held that economic damages arising from construction defects are not recoverable if the basis for liability is negligence or strict liability. Note, however, that Aas does not limit the ability of a plaintiff to sue for negligence or strict liability for actual damages, and the court’s decision does not limit the ability of a plaintiff to sue for economic damages if the basis for liability is breach of contract.
In response, the California legislature enacted SB 800, also known as the Right to Repair Act (Civil Code sections 895 et seq.), to limit Aas. The Right to Repair Act permits homeowners of newly constructed residential housing, including single family homes and condominiums (but not condominium conversions), to sue for economic damages alone, if the residential housing does not meet the construction standards set forth under the Right to Repair Act and the homeowner has gone through the prelitigation procedures provided under the Act.
Until this past month, there’s been an open question regarding whether homeowners have to comply with the Right to Repair Act’s prelitigation procedures if they are only claiming economic damages or if homeowners have to comply with the Right to Repair Act’s prelitigation procedures when claiming both economic damages and actual damages or actual damages alone. The California Courts of Appeal have reached contrary decisions. See our blog posts on Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98 (holding that the Right to Repair Act does not apply to claims for actual damages); McMillin Albany LLC v. Superior Court (2015) 239 Cal.App.4th 1132 (holding that the Right to Repair Act also applies to claims for actual damages); and Gillotti v. Stewart (2017) 11 Cal.App.5th 875 (holding that the Right to Repair Act also applies to claims for actual damages).
McMillin Albany LLC v. Superior Court
Resolving this appellate court split, the California Supreme Court granted review of the Fifth District Court of Appeals decision in McMillan, and this past month issued a unanimous decision in McMillin Albany LLC v. Superior Court, Case No. S229762 (January 18, 2018).
Analyzing the Right to Repair Act and its legislative history, the California Supreme Court held that following the Aas decision, while “the [California] Legislature preserved common law claims for personal injury, it made the [Right to Repair] Act the virtually exclusive remedy not just for economic loss but also for property damage arising from construction defects.” Thus, held the Supreme Court:
- Economic Damages: As to economic damages, “a party suffering economic [damages] from defective construction may now bring an action to recover these damages under the [Right to Repair] Act without having to wait until the defect has caused property damage or personal injury.” (Note: Although the Supreme Court states “now,” it was already well understood that homeowners claiming economic damages were required to comply with the prelitigation procedures of the Right to Repair Act before filing suit).
- Property Damage: As to property damage, “the [Right to Repair] Act expressly includes property damages resulting from construction defects among the categories of damages recoverable under the Act,” and thus, the Right to Repair Act provides “the exclusive way to recover such damages.”
- Personal Injuries: As to personal injuries, “personal injury damages are not listed as a category recoverable under the [Right to Repair] Act,” and thus, “[t]his omission places personal injury claims outside of the scope of [the Act].”
In addition to addressing the types of damage claims subject to the Right to Repair Act, the California Supreme Court also addressed whether a homeowner can bypass the Right to Repair Act’s prelitigation procedures if the homeowner claims a construction defect not specifically addressed in the construction standards of the Right to Repair Act. The Supreme Court held that a homeowner could not. The Supreme Court explained that in addition to the specific construction standards set forth under the Right to Repair Act, Civil Code section 897 also provides a “catchall standard” that provides that “[t]o the extent that a function or component of a structure is not addressed by these standards, it shall be actionable if it causes damages,” and that this “catchall standard” requires that construction defects not specifically addressed under the construction standards of the Right to Repair Act (whether they cause economic damages or property damages) must also comply with the Right to Repair Act’s prelitigation procedures.
The California Supreme Court’s decision in McMillin is a big win for builders, general contractors, subcontractors, material suppliers, manufacturers, and design professionals and clarifies that for newly constructed residential housing purchased on or after January 1, 2003:
- With the exception of claims for personal injuries, claims for both economic damages, as well as property damage, are subject to the prelitigation procedure set forth under the Right to Repair Act; and
- The Right to Repair Act applies to all construction defect claims including construction defects not specifically addressed under the construction standards of the Right to Repair Act.
Although homeowners suffered a loss under McMillin, homeowners still have the ability even after the decision, to bring a claim for personal injuries, breach of contract, fraud and strict liability without first having to comply with the Right to Repair Act’s prelitigation procedures.