By D. Kent Westerberg
In Aas v. Superior Court of San Diego (2000) 24 Cal. 4d 627, the California Supreme Court held that in a construction defect case for negligence only, a plaintiff homeowner or homeowners’ association cannot recover damages in tort unless there is resulting property damage. The Aas case has had a significant impact in California because plaintiffs can no longer recover their pure, economic loss, i.e., cost of repair or diminuition in value, for mere construction defects. Unless there is resulting property damage, recovery in tort is precluded. The Aas case only addressed construction defects that the court characterized as not having caused property damage, including, for example, inadequate shear walls or missing fire blocking, as distinguished from, for example, water leaks, which do cause resulting property damage. As a result of the ruling in Aas, only plaintiffs in contractual privity with either the developer, contractor, or subcontractor will be able to recover damages for defects which have not resulted in property damage, by stating a claim for breach of contract or warranty. Consequently, subsequent home buyers who have no contractual privity will have no viable theory of recovery for defects which did not result in property damage, until or unless those defects actually cause some form of property damage. Not surprisingly, this is a very significant limitation on the building industry’s liability for defects to homeowners, and legislation is being debated by the California Legislature to overturn the Aas decision.
For example, SB355 is a bill being debated which provides that all persons engaged in the construction of new homes or common interest developments are required to adhere to the building codes applicable at the time of construction; that causes of action for construction defects based on violations of the building or other applicable codes do not require a showing of death, bodily injury, or existing property damage; that the cost of repairing the code violation is damage that may be recoverable pursuant to existing loss; and that the provisions of the bill shall apply to actions arising on, before, or after January 1, 2000. This bill also provides that it is the intent of the legislature to abrogate the holding by the California Supreme Court in Aas that developers who violate building codes by breach of their duty of care by failing to install safety protection such as fireproofing, seismic restraints, or proper electrical wiring, may not be held liable in negligence unless the building code violation has caused death, bodily injury or property damage.
The controversy arising from the Aas decision is far from over. While the decision clearly favors the building industry, consumer groups and homeowner associations will not sit idle and we fully expect to see the decision challenged or criticized in other rulings and we also expect to see legislation implemented to modify the impact of the decision in Aas.