Category Archives: Litigation

Pennsylvania’s Supreme Court Limits The Scope Of A Builder’s Implied Warranty of Habitability


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By: Edward A. Jaeger, Jr. and William L. Doerler

In Conway v. Cutler Group, Inc., — A.3d –, 2014 WL 4064261 (Pa.), the Supreme Court of Pennsylvania addressed the question of whether a subsequent home buyer can recover from a home builder pursuant to the builder’s implied warranty of habitability, a warranty that protects those who purchase a newly constructed home from latent defects. Concluding that a builder’s warranty of habitability is grounded in contract, the Court held that a subsequent purchaser of a previously inhabited home cannot recover damages from a builder-vendor based on the builder-vendor’s breach of the implied warranty of habitability. The Court’s decision leaves unanswered the question of whether a purchaser who is also the first user-purchaser of a new home can pursue a breach of warranty action against a builder with whom the purchaser is not in privity of contract.

In Conway, the Cutler Group, Inc. (Cutler) sold a new home to Davey and Holly Fields. The Fields subsequently sold the home to Michael and Deborah Conway. After the Conways discovered water infiltration problems in their home, they filed a one-count complaint against Cutler, alleging that Cutler breached its implied warranty of habitability. In response to the Conways’ complaint, Cutler filed preliminary objections, arguing that the warranty of habitability extends from the builder only to the first purchaser of a newly constructed home. The trial court sustained Cutler’s preliminary objections based on the lack of contractual privity between the parties and the Conways appealed the trial court’s decision. On appeal, the Superior Court reversed, stating that the implied warranty of habitability is based on public policy considerations and exists independently of any representations by the builder, and even in the absence of an express contract between the builder and the purchaser. Cutler appealed the Superior Court’s decision to the Supreme Court.

To address the question of whether the implied warranty of habitability extends to a subsequent purchaser of a used residence, the Court discussed the history of the implied warranty of habitability in Pennsylvania. As stated by the Court, the Court adopted the implied warranty of habitability in the context of new home sales to reject the traditional doctrine of caveat emptor (buyer beware) because the purchaser of a new home justifiably relies on the skill of the developer. Thus, as between the builder-vendor and the buyer, the builder should bear the risk that the home he builds is habitable and functional. In adopting the doctrine, the Court noted that the doctrine is rooted in the existence of a contract – an agreement of sale – between the builder-vendor and the buyer.

Although the Superior Court extended the doctrine to subsequent purchasers of a used residence on public policy grounds, the Supreme Court concluded that the question of whether the implied warranty of habitability should be extended to the subsequent purchaser of a used residence is a matter of public policy for the General Assembly, not the Court, to decide. Although the Court recognized that courts have the power to formulate public policy in the clearest cases, the Court found that the issue before it did not present such a case. Thus, the Supreme Court declined to extend the implied warranty of habitability beyond its current formulation, a formulation that requires privity of contract between the parties.

In reaching its decision, the Supreme Court distinguished the facts of the Conway case from the facts in Spivack v. Berks Ridge Corp., 586 A.2d 402 (Pa. Super. 1990), the case on which the Superior Court based its decision. In Spivack, the plaintiffs purchased a “yet-to-be-constructed” condominium from a developer, who was a separate and distinct entity from the builder/general contractor of the condominium. After finding deficiencies in the condominium, the plaintiffs sued the builder/general contractor based on a breach of the builder’s warranty of habitability. The Superior Court held that, where a builder knows or should know that a home’s first purchaser will not be its first user, the builder’s implied warranty must, necessarily, extend to the first user-purchaser. Thus, as stated by the Conway Court, the warranty of habitability adopted in Spivack applies only in circumstances where the first purchaser never used or occupied the home. This was not the situation that the Court addressed in Conway.

In holding that the implied warranty of habitability does not extend to a subsequent purchaser of a used residence, the Court declined to rule on the propriety of the Superior Court’s analysis in Spivack. Thus, despite the fact that the Supreme Court declined to extend the implied warranty of habitability to used home buyers who are not in privity with the builder-vendor, an injured party who falls within the Spivack fact pattern – as the first user-purchaser of a new home – should continue to assert implied warranty of habitability claims against his or her builder/general contractor. Ultimately, however, whether a first user-purchaser who is not in privity with the defendant builder will succeed on his or her implied warranty of habitability claim is, based on the analysis in Conway, an undecided question.

For more information regarding this alert, please contact Ed Jaeger (215.864.6322 / jaegere@whiteandwilliams.com) or Bill Doerler (215.864.6383 / doerlerw@whiteandwilliams.com).

This entry was posted in Construction Defects, Litigation, Pennsylvania, Warranty-Implied and tagged , .

Insurer’s Failure To Give Notice Before Repairing Its Insured’s Home Bars The Insurer’s Subrogation Claim Under California’s Right To Repair Act


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By: Edward A. Jaeger, Jr.

In KB Home Greater Los Angeles, Inc. v. Superior Court (Allstate Ins. Co.), 168 Cal. Rptr. 3d 142 (Cal. Ct. App. 2014), the California Court of Appeal addressed the question of whether a subrogating insurer’s failure to comply with the pre-litigation procedures of the California Right to Repair Act (Cal. Civ. Code § 895 et seq.) (the Act) – which require that a homeowner give a builder notice and an opportunity to repair alleged defects – barred the insurer’s claim under the Act. The Court of Appeal held that the insurer’s failure to comply with the pre-litigation procedures of the Act prior to repairing the insured’s home barred the insurer’s cause of action under the statute.

In KB Home, Dipak Roy (Roy), the insured, bought a home from builder KB Home in 2004. Roy’s purchase agreement with KB Home contained a right to repair addendum that advised Roy of the pre-litigation procedures of the Act and directed that notices of defect claims be sent to KB Home’s corporate address in Los Angeles. The limited warranty section of the agreement provided for telephone notice in cases of emergency, followed by a promptly submitted written warranty claim.

In March 2010, Roy’s property manager discovered a water leak in the home, which was vacant at the time. The property manager shut off the water service to the home and called Roy, who, in turn, called his insurer, Allstate Insurance Company (Allstate). Allstate hired a mitigation company to remove excess water, damaged dry wall, and carpet. Allstate inspected the home in April 2010 and completed repairs in June 2010. In July 2010, Allstate sent KB Home a notice of its intent to pursue subrogation claims arising from the water leak. Allstate sent the notice to an address in Irvine, not to KB Home’s corporate address in Los Angeles. In November 2010, however, Allstate’s counsel sent a settlement demand to KB Home’s Los Angeles address. KB Home did not respond to Allstate’s demand.

In March 2011, Allstate filed a subrogation complaint against KB Home. In March 2012, Allstate filed a second amended complaint that alleged causes of action for negligence, strict liability, breach of implied warranty, and violation of the Act. KB Home demurred and the trial court overruled the demurrer, reasoning that the Act did not apply to subrogation claims. On KB Home’s petition, the Court of Appeal issued an alternative writ, directing the trial court to sustain the demurrer as to the negligence and strict liability claims, and to overrule the cause of action under the Act.

After the matter was sent back to the trial court, KB Home filed a motion for summary judgment against Allstate, arguing that it was not given timely notice and an opportunity to repair the defect. Allstate filed a cross-motion for summary judgment, arguing, among other things, that the Act did not require that notice be given to builders before repairs are made and that Allstate complied with the statute’s notice requirements. The trial court denied KB Home’s motion for summary judgment, finding that Allstate’s July and November 2010 letters to KB Home substantially complied with the notice requirements of the Act, and that KB Home forfeited its right to repair when it failed to respond to those letters. In addition, the trial court granted Allstate’s motion for summary judgment, finding that KB Home violated the building standards of the Act. Upon KB Home’s petition, the Court of Appeal issued an alternative writ of mandate, directing the trial court to grant KB Home’s motion for summary judgment and to deny Allstate’s cross-motion for summary judgment. Instead, the trial court upheld the rulings and returned the matter to the appellate court.

Upon return, the Court of Appeal addressed the issue of whether the Act – which applies to the original construction of individual homes sold after January 1, 2003 – requires that notice be given to a builder before repairs are made to a home. Pursuant to Chapter 4 of the Act, a homeowner is required to provide written notice to the original builder of a violation of any of the building standards identified in the statute. Although Allstate argued that the Act does not expressly require that builders be given notice of a defect before repairs are made, the Court of Appeal rejected Allstate’s argument because the pre-litigation procedures in the Act are sequential, and designed to give a builder the opportunity to resolve a homeowner’s construction defect claim “in an expeditious and nonadversarial manner.” As such, completing repairs before providing notice defeats the purpose of the pre-litigation procedures by prohibiting a builder from inspecting the alleged defect and making an offer to repair. The Court of Appeal also found that Allstate’s notice to KB Home did not substantially comply with the Act’s requirements because Allstate gave notice to KB Home months after the defect was repaired. Specifically, the appellate court observed that the notice letter merely asserted Allstate’s subrogation rights, made no reference to the Act, and identified a defect that no longer existed at the time. Because the Act required that Roy, the insured, give KB Home timely notice of the alleged construction defect and KB Home did not receive such notice, Allstate’s subrogation claim under the Act failed.

In analyzing Allstate’s claim, the Court of Appeal also addressed Allstate’s argument that the Act’s notice requirements are not practical when a construction defect causes actual damage, requiring emergency repairs. The appellate court, in dicta, rejected this argument, stating that the Act does not prevent homeowners from seeking immediate redress. Rather, under the Act, a homeowner can comply with the pre-litigation procedures by contacting the builder immediately, through any applicable normal customer service procedures and, then, providing the statutorily required written notice. As stated by the Court of Appeal, because the Act requires the builder to compensate the homeowner for consequential damages, including the cost of repairing actual property damage, the builder has an incentive to act quickly in cases of emergency.

The analysis in KB Home highlights the fact that, when a home is subject to the requirements of the Act, subrogating insurers should comply with the written notice requirements of the Act. In cases of emergency, insurers should contact the builder through its normal customer service procedures and send written notice as required by the Act. Absent compliance with the Act’s notice and opportunity to repair requirements, an insurer’s subrogation claim may be barred.

For more information regarding this alert, please contact Ed Jaeger (215.864.6322 / jaegere@whiteandwilliams.com).

This entry was posted in California, Litigation, Right to Repair Act, Subrogation and tagged , .