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Thelen Reid Brown Raysman & Steiner LLP
In
1990, plaintiffs bought a house in San Clemente, California,
constructed by defendant. Problems with the property began
to appear shortly after plaintiffs moved in and continued
over the next few years. In 1993, plaintiffs sued the builder,
alleging only strict liability. Plaintiffs alleged that
defendant constructed the home on inadequately compacted
soil, causing slab movement and deformation that, in turn,
damaged the structure and yard improvements, diminished
the property's value and required plaintiffs to incur expenses
for remedial measures, including employing professionals
to assess the situation and make recommendations, including
replacement of the slab. The trial court awarded damages
to plaintiffs but did not allow the recovery of any professional
investigative costs.
On
appeal, defendant argued that plaintiff could not recover
on a strict liability theory when a defect in one component
of a house causes injury to other components of the house
but not to persons or property apart from the structure.
Defendant asserted that such damage constitutes nothing
more than "injury to the product itself," a loss
for which strict liability compensation is barred by the
economic loss rule.
The
economic loss rule limits damages caused by a defective
product exclusively to a warranty action. The purpose of
the rule is to prevent recovery of purely economic losses
on the basis of strict liability because such a recovery
would unjustifiably expose the manufacturer to "damages
of unknown and unlimited scope."
The
Court of Appeal, however, held that strict liability damage
constitutes property damage and, therefore, is not precluded
by the economic loss rule. Stearman v. Centex Homes,
78 Cal.App.4th 611 (2000).
The court found the defendant was arguing that, for purposes
of strict product liability doctrine, a home was the equivalent
of a toaster, which, when it catches fire due to faulty
wiring, can be said to have injured only itself. Instead,
the court held that when a defective foundation results
in cracked walls, ceilings and countertops throughout the
home, recovery of strict liability damages is not barred
by the economic loss rule.
The
court also allowed plaintiffs to recover fees incurred to
hire geotechnical and structural experts to determine the
appropriate repair methodology. The court agreed with plaintiffs
that these costs were distinct from litigation costs and
were properly part of plaintiffs' damages.
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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.
©2001
Thelen Reid Brown Raysman & Steiner LLP
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