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The Right to Repair Act, part 2: How does it affect subrogation claims?

| Apr 19, 2016 | Real Estate Litigation

In the first part of this post, we discussed a key appellate ruling on the scope of California’s Right to Repair Act, also referred to as SB 800.

In Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC, the California Court of Appeals held that SB 800 is not an exclusive remedy for homeowners when seeking compensation for construction defects.

In this post, we will discuss some of the implications of this decision. We will also consider the question of how SB 800 affects subrogation claims when insurers take immediate action to repair defects.

Implications for homeowners

The Liberty Mutual ruling is a welcome one for homeowners who may face defect issues. In situations where there has been actual property damage, the ruling makes clear that homeowners have options.

One option is to use the alternative remedies allowed under SB 800. This means using a pre-litigation procedure in which the builder is given notice of the alleged defects and given a chance to repair them before any formal litigation is filed.

Another option is to assert a common law claim against the builder for damages from the defects. That type of action is based on principles of tort law, not on SB 800.

Even if the losses suffered by the homeowner involve economic losses but not property damage, homeowners can still pursue common law claims – as long as they utilize the pre-litigation procedure in SB 800 first.

In short, California’s Right to Repair Act puts significant burdens on builders. These burdens make getting the right insurance in place, and complying with its requirements, very important.

Subrogation claims by insurers

But insurance companies also have their own challenges under SB 800.

In that context, let’s take note of another important appellate ruling in recent years, KB Home Greater Los Angeles, Inc. v. Superior Court (Cal. App. 2013).

In KB Home, a property manager for the insured found a water leak and informed the owner. The owner quickly informed the homeowners insurer, which promptly stepped in to six problem. This included repair of the damage done to drywall and carpeting by the leak.

The homeowners insurer then tried to recover from the builder through a subrogation action. But the court found that the insurer could not do this because it had failed to notify the builder of the defect, as required by SB 800.

The court’s ruling raises many questions about what an insurer has to do in order to retain its subrogation rights. To know how this may affect your particular situation, it makes sense to get counsel from a knowledge real estate attorney.