Close Enough Only Counts in Horseshoes and Hand Grenades

In State Farm General Insurance Company v. Oetiker, Inc., Case No. B302348 (December 18, 2020), a manufacturer sued in subrogation action under the Right to Repair Act almost got away. Almost.

The Oetiker Case

James and Jennifer Philson’s home was substantially completed, and a notice of completion was recorded, in 2004. In 2016, the Philsons tendered a claim to their homeowner’s insurance carrier, State Farm General Insurance Company, after their home experienced significant water damage due to a defective stainless steel ear clamp.

In 2018, after paying the Philson’s claim, State Farm filed a subrogation action against the manufacturer of the ear clamp, Oetiker, Inc. State Farm’s complaint, which included causes of action for negligence, strict products liability and breach of implied warranty, alleged that the home was “damaged by a water leak from the failure of a defective stainless steel ear claim on a water PEX fitting” and that the ear clamp was “defective when it left the control of [Oetiker].”

Because Philson’s home was newly constructed when purchased, Oetiker claimed that State Farm’s subrogation claim was subject to the Right to Repair Act which included a 10-year statute of repose for latent defects and filed a motion for summary judgment on that basis. The trial court granted Oetiker’s summary judgment finding that “Oetiker has established that Plaintiff’s claims for property damage . . . fall within Civil Code section 896(a)(14), (15) [of the Right to Repair Act].”

State Farm appealed.

The Appeal

On appeal, the 2nd District Court of Appeal explained that the Right to Repair Act, while it applies generally to “builders,” also applies as set forth in the Act, “to the extent set forth in Chapter 4 . . . [an] individual product manufacturer . . . [who] shall, except as specifically set forth in this title, be liable for, and the claimant’s claims or causes of action shall be limited to violation of . . . the standards [set forth in the Act].”

Thus, explained the Court of Appeal, the threshold question was whether the defective ear clamp fell within the standards set forth under the Right to Repair Act. The Court held that it did explaining that the standards require that the “lines and components of the plumbing system . . . shall not leak” and that the “[p]lumbing lines . . . shall not corrode so as to impede the useful life of the systems.” And, here, explained the Court, the ear claim at issue was installed on a PEX fitting, a type of plumbing line fitting, and thus was part of the “lines and components of the plumbing system.”

In response to State Farm’s claim that the Right to Repair Act did not apply because Section 896(g)(3)E) of the Act excludes “any action seeking recovery solely for a defect in a manufactured product located within or adjacent to the structure,” the Court of Appeal held that the exception does not apply when a defective product causes a violation of the standards set forth in the Act.

Nevertheless, explained the Court of Appeal, while the Act precludes State Farm’s negligence cause of action, the Act did not preclude State Farm’s strict products liability and breach of implied warranty claims. Citing, McMillin Albany LLC v. Superior Court (2018) 4 Cal.5th 241, in which the California Supreme Court held that the Right to Repair Act replaces common causes of action including causes of action for negligence, strict products liability, breach of contract, and breach of warranty, the Court held that the Act applies different standards to builders versus non-builders, and as to product manufacturers Section 936 of the Act only provides that the Act only applies to a product manufacturer’s negligent act or omission or breach of contract. Thus explained the Court of Appeal:

[A] product manufacturer is liable under the Act only where its negligence or breach of contract caused a violation of the standards [set forth under the Act]. . . . State Farm is therefore precluded from bringing its negligence cause of action . . . [but] [w]e reach a different conclusion with respect to State Farm’s strict liability and breach of implied warranty causes of action. Nothing in the Act restricts a homeowner or its insurer from bringing causes of action which fall outside of the Act.

Conclusion

I’ve never had the chance to the see the Right to Repair Act applied to a products manufacturer, so this case was interesting. The Right to Repair Act is a relatively dense statute with a complicated history and I’m always surprised when reading the cases that come out of it.