The Second District Appellate Court ruled last week that a homeowner may pursue claims for negligence and breach of implied warranty against a general contractor and developer for construction defects that caused property damage on her newly constructed home. (Burch v Superior Court Premier Homes et. al. 2014 DJDAR 1991) The appellate courtís ruling reversed the trial courtís order granting summary adjudication in favor of the general contractor/developer defendants.
The Court rejected defense arguments that the Right to Repair Act (Civ. Code §895 et. seq.) was the exclusive remedy for a homeowner seeking damage for construction defects, holding that a duty of care was owed to Burch as a prospective purchaser. The court also rejected the argument that a lack of privity of contract barred a claim for breach of an implied warranty of quality and fitness, finding that the buyer (Burch) was a third party beneficiary of the construction contract between the developer and the general contractor.
The Court acknowledged the seminal Aas decision (Aas v Superior Court (2000) 24 Cal.4th 627, 647, 652-653), which had held that defects in residential construction are actionable in tort only if they caused property damage or personal injury. The Right to Repair Act abrogated the holding in Aas by allowing recovery of damages for specified defects resulting in only economic loss, but the court held that the Act does not limit or preclude common law claims for damages for construction defects that have caused property damage (Liberty Mutual Ins. Co. v Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98 at 108.)
Burch alleged the defendants breached their duty of care resulting in deficient construction, including specific defects that caused property damage. The Court found that the defendants failed to establish the absence of a duty of care relying on Bily v Arthur Young & Co. (1992) 3 Cal.4th 370, 397 and the earlier case of Biakanja v Irving (1958) Cal.2nd 647, 650 which listed six factors in establishing a duty of care in the absence of privity of contract. It distinguished the holding of Wesloh Family Ltd. Partnership v K.L. Wessel Construction Co., Inc. (2004) 125 Cal.App.4th 1952 which granted summary judgment in favor of design engineers which had negated a duty of care by presenting evidence that they had no contractual privity with either the owners or the general contractor.
The Burch court found that the general contractor here was responsible for overall construction rather than the provider of professional services to a subcontractor; the defendants did not challenge the element of causation; the concerns of Bily did not apply; and, the Wesloh holding did not support the absence of a duty of care under the circumstances before it.
Burch alleged she was a third party beneficiary of the construction contract between the developer and the general contractor. While acknowledging that a warranty of quality and fitness is implied in a sales contract for new construction (Pollard v Saxe & Yolles Dev. Co. (1974) 12 Cal.3rd 374, 376, 379-380) and that the general rule is that there is no implied warranty without privity of contract, the Burch court decided to follow the holding of Gilbert Financial Corp. v Steelform Contracting Co. (1978) 82 Cal.App.3rd 65. In Gilbert a real property owner was allowed to maintain a cause of action for breach of implied warranty of quality and fitness despite the lack of a contract between the owner and the subcontractor. Under the circumstances presented to the court in Gilbert the owner was found to be the intended beneficiary of the contract between the general contractor and the subcontractor. Since the trial court in Burch did not conclude Burch was not the intended beneficiary of the construction contract between the developer and general contractor, it erred in granting summary adjudication in favor of defendants for breach of implied warranty.
When it comes to construction defect litigation involving new homes there are no absolutes or safe harbors for developers and/or general contractors. The Right to Repair Act is not the sole remedy and the lack of privity of contract may not preclude an aggrieved homeowner from successfully stating a cause of action for breach of implied warranty.
Geoff Wood can be contacted at 510.832.7770 or