Right to Repair Act Does Not Bar Subro Claim

Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC
(Cal. Ct. of App., 4th Dist.), filed August 28, 2013, published August 28, 2013

Eric Hart bought a newly constructed home from Brookfield Crystal Cove LLC. A pipe in the home’s sprinkler system burst, causing significant damage. Brookfield repaired the damage. Hart’s homeowners insurer, Liberty Mutual Insurance Company, paid Hart’s relocation expenses, incurred while Hart was out of his home during the repair period.

Liberty Mutual sued Brookfield in subrogation to recover those expenses. The trial court found Liberty Mutual’s complaint was time-barred under the Right to Repair Act embodied by Civil Code Section 895 et seq., and dismissed its action.

The Court of Appeal reversed.

The Right to Repair Act was enacted to provide remedies where construction defects have negatively affected the economic value of a home, although no actual property damage or personal injuries have occurred as a result of the defects. The court held that the Act does not eliminate a property owner’s common law rights and remedies, otherwise recognized by law, where actual damage has occurred. As a result, Hart retained his common law rights against Brookfield.

Under the doctrine of subrogation, when an insurer pays money to its insured for a loss caused by a third party, the insurer succeeds to its insured’s rights against the third party in the amount the insurer paid.

As a result, Liberty Mutual was entitled to sue Brookfield based on Hart’s common law rights. Therefore, it brought its action within the time permitted by the statute of limitations.