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Thelen Reid Brown Raysman & Steiner LLP
Continuing
a trend, the recent decision in Carrau v. Marvin Lumber
and Cedar Company, 93 Cal.App.4th 281, 112 Cal.Rptr.2d
869 (2001) appears to further reduce the potential liability
of developers, contractors and subcontractors for construction
defects in California.
By
way of background, in Aas v. Superior Court, 24 Cal.
4th 627 (2000), the California Supreme Court announced a
significant limitation on the scope of potential recovery
by plaintiffs in construction defect actions, holding that
there could be no tort recovery (negligence/strict liability)
for construction defects that have not actually caused property
damage, even when the defects violated applicable building
codes intended to prevent harm to life, health and property.
The
Aas court reasoned: "Construction defects that
have not ripened into property damage, or at least into
involuntary out-of-pocket losses, do not comfortably fit
the definition of 'appreciable harm' - an essential element
of a negligence claim…. The breach of a duty causing
only speculative harm or the threat of future harm does
not normally suffice to create a cause of action."
The court concluded by stating that it could not "justify
a broad rule permitting recovery of repair costs unaccompanied
by property damage or personal injury."
The
Aas decision left several important issues unsettled,
including the definition of what constitutes "property
damage" and whether diminution in value may be an alternate
basis for measuring damages.
In
the Carrau decision some of these unanswered questions
were addressed. The plaintiff bought 50 Marvin windows and
installed them in the luxury home he built in Orinda. The
windows had been treated with an ineffective preservative,
with the result that they were subject to premature rotting.
Within three or four years after completion of the house,
the windows were having problems, including at least one
window that was leaking, with some minor damage to wallpaper,
drywall and stucco.
The
plaintiff determined that all of the windows needed to be
replaced. It was undisputed that replacement of the windows
also would necessitate performing other work, such as removal
and restoration of landscaping, replastering, restoring
interior faux painting finishes that would be damaged by
the repairs and related work. Plaintiff obtained bids in
the range of $450,000 to replace the windows and perform
the related remedial work. Marvin refused to pay although
it did furnish 50 replacement windows.
The
plaintiff ultimately sold the residence for $5,250,000 and,
as part of the sale, agreed to credit the purchasers with
$426,000 to cover the costs of installing the replacement
windows. A lawsuit by the seller against Marvin followed,
which included causes of action for breach of warranty and
strict products liability.
The
court rejected plaintiff's breach of warranty claim, applying
the four-year statute of limitations in California Commercial
Code §2725 and finding that plaintiff failed to file
suit within four years of delivery of the windows.
The
court then addressed the cause of action for strict products
liability, for which the trial court had awarded plaintiff
$350,000. The Court of Appeal reversed this award, relying
on Aas and broadly characterizing Aas as holding that "a
plaintiff is not entitled to recover in tort for the costs
of repairing and replacing a defective product; recovery
for those costs is available only under contract or breach
of warranty law."
The
Carrau court appeared to sidestep the issue of whether
the damage to drywall, stucco and landscaping that would
inevitably result from the window repairs constituted "property
damage" so as to allow for recovery in tort. The court
simply found that the plaintiff "did not pay for the
costs of repairing this damage" and, therefore, could
not recover damages for costs that were not incurred. Implicit
in the court's analysis, however, is the principal that
these collateral repair costs do not constitute "property
damage," a significant limitation.
The
Carrau court also went on to hold that the plaintiff
could not recover damages based on the diminution in value
to the residence resulting from installation of defective
windows, stating: "[W]hen the value of the home was
diminished by the use of Marvin's products, [the plaintiff]
lost an economic benefit. He is not entitled to recover
that benefit on a theory of products liability."
The
potential significance of the Carrau decision is
profound. In the aftermath of Aas, commentators noted
that the rule of "non-liability for construction defects
not causing property damage" stated in Aas only
applies to tort claims, such as strict liability in tort
and negligence, and does not apply to contractual claims,
such as breach of warranty or contract. Carrau emphasizes
that the time period for bringing suit on these contract
based theories may expire much earlier than the time within
which tort claims may be brought. For example, applying
the four-year statute of limitations for breach of a written
contract, the deadline for filing suit to recover for construction
defects not causing property damage may be four years from
the date of the sale of improved real property.
Further,
while Aas made it clear that there was no tort liability
for the costs to remedy defects NOT causing property damage
(missing holddowns, improperly nailed drywall, undersized
electrical services, excessive sound transmission), Carrau
appears to hold that no recovery is allowed for the costs
of repairing collateral damage necessarily caused in repairing
the defects and suggests that recovery of the costs of getting
to the defects also is barred, at least in the absence of
significant resulting damage actually caused by the construction
defect. While Carrau involved claims against a window
manufacturer, its logic and the breadth of its holding appear
to apply with equal force to contractors and subcontractors.
Thus, tort recovery for construction defects appears limited
to the costs of repairing resulting damage caused by the
defects, absent further and imaginative theories from the
plaintiffs' bar.
Finally,
the rule of non-recovery for diminution in value stated
in Carrau may be open to interpretation or expansion.
If, in fact, there was substantial water intrusion and resulting
damage and if these costs were quantified during the sale,
there would appear to be no reason to disallow plaintiff's
tort recovery for these damages. In Carrau, the court
was faced with a difficult factual scenario in that the
plaintiff had not actually incurred the repair costs it
sought to recover as damages and that the repair costs represented
either the costs to repair the windows (clearly not recoverable
under Aas) or the costs to repair damage that would
occur during the repair (which the court held could not
be recovered) as opposed to damage that had ALREADY resulted
as of the time of the sale of the residence (which costs
were nominal).
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-369-7229 or at pwberning@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2002 Thelen Reid Brown Raysman & Steiner LLP
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