Article first published in the Association of Defense Counsel of Northern California and Nevada’s Defense Comment magazine, Summer 2021 edition.

In State Farm General Insurance Company v. Oetiker, Inc. (2020) 58 Cal.App.5th 940 the Second District Court of Appeal addressed a Right to Repair Act (the “Act”) case concerning a product manufacturer trying to dodge a subrogation action based on the Right to Repair Act, California Civil Code Title 7, Section 895, et seq.ⁱ The Court of Appeal determined that the Right to Repair Act governing residential construction defect litigation does not preclude a homeowner, or its insurer, from bringing causes of action which fall outside of the Act.ⁱⁱ

Background

In 2016, homeowners James and Jennifer Philson (“the Philsons”) tendered a claim to their homeowner’s insurance carrier, State Farm General Insurance Company (“State Farm”).ⁱⁱⁱ The claim was for water damage sustained to their home due to plumbing leaks caused by a defect in a stainless-steel ear clamp on a PEX fitting, which is a plumbing component.^iv

State Farm paid the Philsons’ claim and later filed a subrogation action against the clamp manufacturer, Oetiker, Inc. (“Oetiker”).^v State Farm’s complaint in subrogation alleged causes of action for negligence, strict products liability, and breach of implied warranty. State Farm argued the Philsons’ home was damaged by a water leak from the failure of a defective stainless steel ear clamp on a PEX fitting. The Philsons’ home was substantially completed in 2004.^vi

Oetiker argued State Farm’s subrogation claims were subject to the Right to Repair Act, which includes a 10-year statute of repose for latent defects.^vii Therefore, Oetiker filed a motion for summary judgment based upon the 10-year statue of repose. The trial court initially granted Oetiker’s motion for summary judgment, ruling the allegations do fall within the standards of California Civil Code section 896(a)(14) and (15) of the Right to Repair Act. State Farm appealed the ruling.^viii

Analysis

The Second District Court of Appeal discussed the Right to Repair Act, which generally applies to “builders.”^ix However, the court stated the Act also applies “to … an individual product manufacturer who, shall except as specifically set forth in this title, be liable for, and the claimant’s claims or causes of action shall be limited to a violation of the standards set forth in the Act.”^x The court analyzed whether the defective clamp in question fell within the standards under the Right to Repair Act, holding that it did. Section 896 (a) (14) and (15) state that plumbing systems shall not leak, and the plumbing lines shall not corrode so as to impede the useful life of the systems. The ear clamp on the PEX fitting at issue was a component of the plumbing system lines.^xi

State Farm also claimed the Right to Repair Act did not apply because Section 896 (g) (3)(E) excludes an action for recovery solely for a defect in a manufactured product located within the structure.^xii The Court of Appeal held the exception does not apply when a defective product, as in this instance, causes a violation of standards within the Act.^xiii

The Court of Appeal further discussed McMillin Albany LLC v. Superior Court (2018) 4 Cal.5th 241, which held the Right to Repair Act supplants common law causes of action including negligence, strict products liability, breach of contract and breach of warranty.^xiv Here the Court of Appeal also held the Act precludes State Farm’s negligence cause of action but does not preclude State Farm’s strict liability and breach of warranty claims.^xv This is because there are different standards applied to builders and non-builders such as manufacturers.^xvi

The Court of Appeal held: “[A] product manufacturer is liable under the Act only where its negligence or breach of contract caused a violation of the standards [set forth under the Act] … State Farm is therefore precluded from bringing its negligence cause of action … [but] [w]e reach a different conclusion with respect to State Farm’s strict liability and breach of implied warranty causes of action. Nothing in the Act restricts a homeowner or its insurer from bringing causes of action which fall outside of the Act.”^xvii The Court of Appeal ruled State Farm was precluded from bringing its negligence cause of action, but was not precluded from bringing its strict liability and breach of warranty causes of action.^xviii

Conclusion

In general, although the McMillin court’s holding that the Right to Repair Act was essentially the exclusive remedy for defects in residential construction applies to product manufacturers as well as “builders” insofar as violations of statutory standards are concerned, the McMillin court also recognized that the statutory scheme preserves some common law claims in certain circumstances. The Right to Repair Act is a complicated and comprehensive statute, and in Oetiker the Court of Appeal addresses and delineates issues clarifying claims against product manufacturers which are excluded from the Act.

i State Farm General Insurance Company v. Oetiker, Inc. (2020) 58 Cal.App.5th 940.

ii Id.

iii State Farm, 58 Cal.App.5th 940.

iv Id.

v State Farm, 58 Cal.App.5th 940.

vi Id.

vii State Farm, 58 Cal.App.5th 940.

viii Id.

ix State Farm, 58 Cal.App.5th 940.

x State Farm, 58 Cal.App.5th 940, at 5.

xi Id.

xii State Farm, 58 Cal.App.5th 940.

xiii Id.

xiv McMillin Albany LLC v. Superior Court (2018) 4 Cal.5th 241.

xv State Farm, 58 Cal.App.5th 940.

xvi Id.

xvii State Farm, 58 Cal.App.5th 940, at 13.

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