Business Law

Appellate Law Update

(Cases from October 10, 2020, to February 16, 2021)

The following published decisions may be of interest to attorneys practicing insurance law:

CALIFORNIA COURT OF APPEAL

Right to Repair Act did not apply to subrogated insurer’s products liability and breach of warranty claims against manufacturer of defective building materials.  State Farm General Insurance v. Oetiker (2020) 58 Cal.App.5th 940

In 2016, two homeowners filed a claim with State Farm under their homeowners’ policy for water damage caused by the failure of clamps installed in the home’s plumbing system in 2004.  State Farm paid the claim, and filed a subrogation action against the clamp manufacturer alleging negligence, strict liability, and breach of implied warranty.  The manufacturer moved for summary judgment on the ground the 10-year statute of repose for latent defects in California’s Right to Repair Act barred the claim.  State Farm argued that the 10-year statute of repose did not apply because the claim was based on a “manufactured product,” which are excepted from the Act.  The trial court agreed with the manufacturer and granted summary judgment for the manufacturer.  State Farm appealed.

The Court of Appeal (Second Dist., Div. Six) reversed the summary judgment.  The appellate court disagreed with State Farm’s argument that the “manufactured product” exception to the Right to Repair Act applied, because that exception applies only when the claimant seeks to recover the cost of the product, not damages resulting from use of the product as State Farm sought here.  However, the court went on to explain that as against non-builder defendants, the Act displaced common law negligence and breach of contract remedies only.  The Act did not displace common law products liability and breach of implied warranty claims.  Accordingly, while the Act applied to State Farm’s negligence claim, meaning that claim was time barred by the Act’s 10-year statute of repose, State Farm’s strict liability and breach of implied warranty claims were not time barred.  Summary judgment was therefore improperly granted as some viable claims remained.

Home protection companies are not subject to tortious bad faith liability.  Chu v. Old Republic Home Protection (2021) __ Cal.App.5th __.

In connection with her purchase of a condominium, plaintiff purchased a home protection contract from defendant.  Under the contract, defendant promised to repair or replace certain appliances and features of the home for a period of time following the property sale.  When the condominium’s HVAC system broke, plaintiff made a claim to defendant for the repair. Defendant hired a technician to fix the system but the technician failed to fix the system and allegedly caused further damage to the system.  Plaintiff brought an action against defendant for breach of contract, violation of the Unfair Competition Law (UCL), and bad faith.  Defendant demurred to the UCL and bad faith claims.  The trial court sustained the demurrers.  Plaintiff dismissed her remaining claims and appealed.

The Court of Appeal (Second Dist. Div. Five) affirmed.  While home protection contracts share some features of insurance policies, and are regulated under certain parts of the Insurance Code, they are not insurance policies designed to protect against catastrophic losses.  They are also not adhesive in the same manner as insurance policies.  Such contracts are, therefore, not the types of contracts for which a tort remedy is needed.  Contract damages adequately protect the homeowner from breach of such a contract.

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This e-Bulletin was prepared by Emily V. Cuatto, Certified Appellate Specialist and Partner of Horvitz & Levy LLP. Ms. Cuatto is a member of the Insurance Law Standing Committee of the Business Law Section of the California Lawyers Association.

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