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One small step for man; one giant leap for mankind
By Dale, Braden, & Hinchcliffe
While this phrase was originally coined by Neil Armstrong during his 1969 lunar landing, it appropriately sums up Senate Bill 800 (SB 800). SB 800 is the product of intensive negotiations between the plaintiffs’ bar and the California Building Industry Association (CBIA).
At the start of the 2001/2002 session, California legislators expressed a desire to address the spike in construction defect litigation, the resulting decrease in affordable attached housing, the crisis in contractors’ ability to obtain general liability insurance and the strong efforts of the plaintiffs’ bar to overturn the Aas ruling (a decision that precludes recovery under negligence theories for defects that do not cause property damage). Despite the CBIA’s efforts to include stronger wording favoring builders and their sub-trades, it became very clear that the only way to take a step toward solving any problem was to compromise certain issues. Governor Gray Davis signed the landmark legislation into law on September 20, 2002. While SB 800 is not the total solution, it will certainly change the way construction defect litigation issues are handled.
What does SB 800 do for subcontractors, design professionals and material suppliers? The simple answer is that it not only better defines what consumers can expect of their new homes, it also encourages dispute resolution to avoid litigation. Although these benefits are predominately felt by homeowners and builders, subcontractors, design professionals and material suppliers are also positively affected.
Overview
Known as the “Fix-It” bill, SB 800 provides consumers and builders with a list of what is and what is not a construction defect, something that had never been achieved before. In addition, it gives builders an absolute right to repair problems before homeowners can file construction defect litigation. This will significantly impact the steady stream of lawsuits that has virtually halted the construction of townhomes and condominiums in California.
Specifically Speaking
The following is a brief description of what the bill accomplishes.
• Establishes builders’ liability standards for homes sold after January 1, 2003;
• Defines an exclusive remedy/measure of damages for defects;
• Does not apply to actions for breach of contract, actions for fraud, personal injury, class actions or statutory violations;
• Sets shorter time limitations regardless of when a problem is discovered;
• Provides specific affirmative defenses relating, but not limited, to the failure of a homeowner to promptly notify the builder of a problem, and a homeowner’s failure to properly maintain the property according to the builder’s standards;
• Requires an individual homeowner or association to give a builder specific notice of a claimed violation;
• Allows for an inspection by the builder, and affords an opportunity to repair the condition if a builder so chooses;
• If the homeowner is dissatisfied once any repair is complete, an expedited mediation is required before the homeowner can file a complaint or pursue arbitration; and
• A builder may customize its standards of liability by offering equal or greater protection in its own contract with homeowners.
Subcontractors, Design Professionals and Material Suppliers
Under SB 800, a builder who intends to hold a subcontractor, design professional or material supplier responsible for a defective condition must provide sufficient notice to allow that entity to attend any inspection and participate in the repair process. This is critical. If a builder fails to notify them, that builder will lose its ability to later pursue an indemnity claim at a later date.
Requiring the builder to provide notice will prove enormously beneficial. Assuming there is a swift response to a builder’s notice, repairs can be made before attorneys get involved. This will put some control, albeit limited, into the hands of the aforementioned. Capitalizing on the ability to stand behind one’s work or product, and fixing a problem before it spins out of control has far-reaching benefits. Any ability to minimize claims against one’s general liability policy will improve loss runs — an important and essential step toward obtaining affordable insurance.
Be cautious, as SB 800 will not always result in a full release of liability, even if a repair is affected. If a claimant files suit after a repair and the required mediation, however, a judge, jury and/or arbitrator must answer two core questions: (1) whether there was a failure to comply with the “functionality” standards; and (2) whether an act or omission of the subcontractor, design professional or material supplier caused the damage.
Conclusion
Although SB800 offers builders and their subcontractors, design professionals and material suppliers an opportunity to improve the construction defect problem, without their active involvement in the process, SB 800 will have little or no effect. With comments, suggestions and modifications from those involved in housing production, SB 800 may ultimately become the giant leap its drafters intended — a remedy for an industry that must control its losses. Please contact us for a copy of our detailed user guide and analysis of the “Fix-It” bill, which will contain suggested modifications to contract language that will further the potential benefits.
