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Focus Column
Construction Law
By Daniel Lee Jacobson
The wildfires that recently ravaged Southern California
destroyed thousands of homes. Some of those homes may have been
the subject of construction-defect lawsuits. Others may have
been constructed defectively, although the homeowner had not
filed a lawsuit.
What happens to these lawsuits and potential lawsuits?
Can a homeowner recover damages for a defectively constructed
house that no longer exists? What if the reason that the fire
destroyed the house was that it was constructed defectively?
What if the homeowner's pre-fire complaints had nothing to do
with protecting the house from fire? Does payment that a
homeowner might receive from a homeowners' policy reduce any
damages?
Any analysis of the damages available to a residential
construction-defect plaintiff after a fire destroys his or her
home necessarily must begin with a discussion of the damages
that would have been available before the fire.
Generally, the measure of damages in a
construction-defect case is the lesser of the cost to repair the
structure and the diminution in value caused by the construction
defects. Orndorff v. Christiana Community Builders, 217
Cal.App.3d 683 (1990).
For newly constructed homes sold on or after Jan. 1,
2003, Civil Code Section 896 provides damages for "actionable
defect[s]." See Civil Code Section 896(a)-(g)(15) (defining
"actionable defect"). Fire-related actionable defects are found
at Section 896(d)(1)-(d)(3).
For all other homes, construction-defect damages are
either contractual or tortuous in nature. Aas v. Superior
Court, 24 Cal.4th 627 (2000). The San Diego homeowners in
Aas sought tort damages for defective construction. The
Supreme Court held that only contract damages were available to
repair defective construction. In order to recover tort damages,
the plaintiffs had to show that the defective construction
caused damage to the structure and that the damage did not
consist of the defective construction itself.
One allegation in Aas was that the builders had
not put the proper amount of fire-protection material in the
walls of the homes. The majority held that, unless that lack of
fire-protection material caused damage, tort damages did not
exist.
In his concurring and dissenting opinion, Chief Justice
Ronald M. George said, "In determining that a negligently
constructed home must first ... be gutted by fire before a
homeowner may sue in tort to collect costs necessary to repair
negligently constructed ... fire walls, the majority today
embraces a ruling that offends both established common law and
basic common sense."
The people whose houses burned down in the Southern
California wildfires because of negligent construction certainly
may have damages not only in contract but also in tort.
Aas teaches that actual damage must exist for
there to be compensatory damages of any type. Of course, if the
construction defects involved things that were suppose to stop
or retard a fire, then there may be tort and contract damages -
large damages, given that the house has been destroyed.
But what about construction defects that have nothing to
do with fire protection? What if the homeowner's complaints
involved the plumbing system and leaking windows?
The houses destroyed by the wildfires no longer have
plumbing problems or leaking windows. The plumbing and windows
are simply gone, along with the rest of the house. Their
disappearance had absolutely nothing to do with any other
non-fire-protection-related defect.
To now say that it would have cost X dollars to fix the
plumbing and Y dollars to fix the windows is useless, hollow and
irrelevant to people who no longer have plumbing or windows. It
is equally irrelevant to say that the house has diminished in
value by a certain amount because of the plumbing and window
defects, because the house no longer exists.
To analogize this property-damage situation to a
personal-injury situation, consider that personal-injury actions
do not survive the death of the injured individual. Franklin
v. Franklin, 67 Cal.App.2d 717 (1945). There are no more
personal-injury damages because the person is dead. In the
property-damage situation, there are no more compensatory
damages for the defectively constructed property because there
is no more property.
A trespass theory sometimes is used in
construction-defect actions. See Winston Square Homeowner's
Ass'n v. Centex West Inc., 213 Cal.App.3d 282 (1989);
Allen v. Sundean, 137 Cal.App.3d 216 (1982). "[T]here can be
an actionable trespass upon real property for which the owner
may recover nominal damages even though his property is not
injured." Polin v. Chung Cho, 8 Cal.App.3d 673 (1970).
Perhaps, in a particular case, a homeowner might want
nominal damages because he or she needs to be found to be the
prevailing party. Or, in some egregious case, a homeowner might
seek punitive damages, and nominal damages might serve as a
platform for those punitive damages. But the practical efficacy
of a construction-defect plaintiff obtaining nominal damages
seems limited at best.
Construction-defect plaintiffs sometimes allege fraud.
See Kovich v. Paseo Del Mar Homeowners' Ass'n, 41
Cal.App.4th 863 (1996). To the extent that the fraud alleged
caused the homeowner to pay too much for the house, perhaps the
overpayment would survive as viable damages, despite the
destruction of the house. Certainly, if the fraud consisted of a
lie about the fire safety of the house, then the fraud action
may survive.
Under the collateral-source rule, when "an injured party
receives some compensation for his injuries from a source wholly
independent of the tortfeasor, such payment should not be
deducted from the damages which the plaintiff would otherwise
collect from the tortfeasor." Helfend v. Southern Cal. Rapid
Transit Dist., 2 Cal.3d 1 (1970).
"As repeatedly reaffirmed by the California appellate
courts, the collateral source rule represents 'a policy judgment
in favor of encouraging citizens to purchase and maintain
insurance for personal injuries and other
eventualities.'" Miller v. Ellis, 103 Cal.App.4th 373
(2002) (citing Helfend).
In Shaffer v. Debbas, 17 Cal.App.4th 33 (1993),
the plaintiffs sued the builders of their home alleging
construction defects. The defendants responded that the
plaintiffs should not be entitled to recover from the defendants
because the plaintiffs had recovered repair costs from their own
homeowners' insurance. The plaintiffs claimed that the
collateral-source rule applies only to personal-injury cases.
The court disagreed. Relying partially on the "other
eventualities" language in Helfend, the Shaffer
court said that the collateral-source rule applied to
property-damage cases as well as personal-injury cases. It cited
Anheuser-Busch Inc. v. Straley, 28 Cal.2d 347 (1946), a
property case in which the court expressly stated that "where a
person suffers personal injury or property damage by reason of
the wrongful act of another, an action against the wrongdoer for
damages suffered is not precluded nor is the amount of the
damages reduced by the receipt by him of payment for his loss
from a source wholly independent of the wrongdoer."
The Shaffer court cited Phillip Chang & Sons
Associates v. La Casa Novato, 177 Cal.App.3d 159 (1986), in
concluding that payments by a homeowner's insurer for repair of
construction-defect damage are irrelevant to that homeowner's
construction-defect action against the builders of the house.
Phillip Chang held that "where a person suffers property
damage, the amount of damages shall not be reduced by the
receipt by him of payment for his loss from a source wholly
independent of the person who caused the injury."
As to the potential for double recovery, the Shaffer
court stated, "As Helfend explains, the feared 'double
recovery' by a plaintiff seldom occurs because the paying
insurer is subrogated to the rights of the insured as against
the defendants who caused the injury."
"[A]lthough it is often said an insured and a subrogated
insurer share a single cause of action, these parties cannot
recover the same damages. 'When, as often happens, the insured
is only partially compensated by the insurer for a loss (because
of deductibles, policy limits, and exclusions), operation of the
subrogation doctrine "results in two or more parties having a
right of action for recovery of damages based upon the same
underlying cause of action." The insured retains the right to
sue the responsible party for any loss not fully compensated by
insurance, and the insurer has the right to sue the responsible
party for the insurer's loss in paying on the insurance
policy.'" Low v. Golden Eagle, 101 Cal.App.4th 1354
(2002) (citing Allstate Ins. Co. v. Mel Rapton Inc., 77
Cal.App.4th 901 (2000)).
In sum, the victims of Southern California's wildfires
have recourse against builders whose construction caused or
contributed to their fire damage. But they probably no longer
have a valid case against builders whose defective construction
was not fire-protection-related.
The collateral-source rule will not diminish their
recovery because of payment from their insurers, and their
insurers should be subrogated to the right to collect any money
paid.
Daniel Lee Jacobson is an attorney with Veatch,
Carlson, Grogan & Nelson in Los Angeles and an adjunct professor
at Pacific West College of Law.
Wildfire Victims May Sue for
Fire-Protection-Related Defects |