Close Enough Only Counts in Horseshoes and Hand Grenades

Garret Murai | California Construction Law Blog

In State Farm General Insurance Company v. Oetiker, Inc., Case No. B302348 (December 18, 2020), a manufacturer sued in subrogation action under the Right to Repair Act almost got away. Almost.

The Oetiker Case

James and Jennifer Philson’s home was substantially completed, and a notice of completion was recorded, in 2004. In 2016, the Philsons tendered a claim to their homeowner’s insurance carrier, State Farm General Insurance Company, after their home experienced significant water damage due to a defective stainless steel ear clamp.

In 2018, after paying the Philson’s claim, State Farm filed a subrogation action against the manufacturer of the ear clamp, Oetiker, Inc. State Farm’s complaint, which included causes of action for negligence, strict products liability and breach of implied warranty, alleged that the home was “damaged by a water leak from the failure of a defective stainless steel ear claim on a water PEX fitting” and that the ear clamp was “defective when it left the control of [Oetiker].”

Because Philson’s home was newly constructed when purchased, Oetiker claimed that State Farm’s subrogation claim was subject to the Right to Repair Act which included a 10-year statute of repose for latent defects and filed a motion for summary judgment on that basis. The trial court granted Oetiker’s summary judgment finding that “Oetiker has established that Plaintiff’s claims for property damage . . . fall within Civil Code section 896(a)(14), (15) [of the Right to Repair Act].”

State Farm appealed.

The Appeal

On appeal, the 2nd District Court of Appeal explained that the Right to Repair Act, while it applies generally to “builders,” also applies as set forth in the Act, “to the extent set forth in Chapter 4 . . . [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 violation of . . . the standards [set forth in the Act].”

Thus, explained the Court of Appeal, the threshold question was whether the defective ear clamp fell within the standards set forth under the Right to Repair Act. The Court held that it did explaining that the standards require that the “lines and components of the plumbing system . . . shall not leak” and that the “[p]lumbing lines . . . shall not corrode so as to impede the useful life of the systems.” And, here, explained the Court, the ear claim at issue was installed on a PEX fitting, a type of plumbing line fitting, and thus was part of the “lines and components of the plumbing system.”

In response to State Farm’s claim that the Right to Repair Act did not apply because Section 896(g)(3)E) of the Act excludes “any action seeking recovery solely for a defect in a manufactured product located within or adjacent to the structure,” the Court of Appeal held that the exception does not apply when a defective product causes a violation of the standards set forth in the Act.

Nevertheless, explained the Court of Appeal, while the Act precludes State Farm’s negligence cause of action, the Act did not preclude State Farm’s strict products liability and breach of implied warranty claims. Citing, McMillin Albany LLC v. Superior Court (2018) 4 Cal.5th 241, in which the California Supreme Court held that the Right to Repair Act replaces common causes of action including causes of action for negligence, strict products liability, breach of contract, and breach of warranty, the Court held that the Act applies different standards to builders versus non-builders, and as to product manufacturers Section 936 of the Act only provides that the Act only applies to a product manufacturer’s negligent act or omission or breach of contract. Thus explained the Court of Appeal:

[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.


I’ve never had the chance to the see the Right to Repair Act applied to a products manufacturer, so this case was interesting. The Right to Repair Act is a relatively dense statute with a complicated history and I’m always surprised when reading the cases that come out of it.

Deadlines. . . They’re Important. Project Owner Risks Losing Claim By Failing to Timely Identify “Doe” Defendant

Garret Murai | California Construction Law Blog

Earlier this year I filed a complaint in a court which I won’t identify other than to say that it wasn’t the San Francisco Superior Court. Immediately upon filing the complaint the Court gave notice of a trial date. As counsel for the party bringing the action, I appreciate this, as it eliminates the back and forth jostling that can sometimes occur when trying to get a trial date.

Here’s the kicker though. While I appreciate getting a trial date straight out of the gate. The date I got was . . . wait for it . . . not until 2022!

Those who litigate in California state courts know that the courts are understaffed and overworked. But you’ve got to give this un-named court credit for being upfront. Forget the “well, let’s see where this goes” niceties. Trial within a year? Fugetaboutit. Trial within a year and a half. Don’t even think about it. Trial within two years. It’s about as good as you’re going to get.

But it’s not just the courts who have had pre-pandemic issues only get worse since COVID. Everyone these days seem to be running slower in a COVID-induced brain fog. Seriously, it’s a thing. And not just among the Australians. The Irish are apparently feeling it too. And I have a sneaking suspicion so too are we Americans.

With Thanksgiving reduced to your eating a microwaved turkey dinner in front of your television set and Christmas and New Year looking less like reality and more like sugar plums dancing in your head, focused and diligent, should you remain, particularly if you’re litigating this holiday season or any season for that matter.

In the next case, Steciw v. Petra Geosciences, Inc., Case No. G057375 (July 29, 2020), 4th District Court of Appeal, homeowners in a construction defect case nearly lost their right to sue a geotechnical engineer in a claim brought under the Right to Repair Act by failing to serve the engineer within three years after naming the engineer as a defendant.

The Steciw Case 

On July 2, 2014, homeowners Eugene Steciw and others sued Shappell Industries and Toll Brothers, Inc. for construction defects arising out of the construction of their homes in a single-family housing development known as San Joaquin Hills in Laguna Niguel, California. In addition to naming Shappell and Toll Brothers as defendants the complaint also named unidentified defendants, including unnamed engineers, as “Doe Defendants.”

In October 2014, Toll Brothers filed a cross-complaint against various subcontractors but not against Petra Geosciences the geotechnical engineer on the project. Two months later, in December 2014, Toll Brothers filed a motion to dismiss the complaint or, in the alternative, stay the action to comply with the pre-litigation procedures of the Right to Repair Act.

On May 25, 2015, the Court granted Toll Brothers’ motion and stayed the action pending compliance with the pre-litigation procedures under the Right to Repair Act. Nine months later, on February 19, 2016, the Court ended the stay concluding that Toll Brothers “had its opportunity to inspect and repair the defects noticed by Plaintiffs, but has chosen not to.”

On August 2, 2017, the homeowners amended their complaint to name Petra Geosciences as “Doe 101.” According to the homeowners, they did not become aware that Petra Geosciences was a potentially responsible party until April 13, 2017 when Toll Brothers produced discovery identifying Petra Geosciences as the geotechnical engineer. The homeowners served Petra Geosciences on August 9, 2017, three years and 38 days after the original complaint was filed.

Petra Geosciences answered the homeowner’s amended complaint on September 7, 2017. Nine months later, on June 19, 2018, Petra Geosciences filed a motion to dismiss claiming that by serving Petra Geosciences three years and 38 days after the original complaint was filed, the homeowners failed to comply with Code of Civil Procedure section 583.210 which provides that a “summons and complaint shall be served upon a defendant within three years after the action is commenced against the defendant.”

What happened next was interesting and even a bit eyebrow raising:

  • On July 10, 2018, two weeks before the scheduled hearing on Petra Geosciences motion to dismiss, the parties were in court on unrelated matters when the trial court decided sua sponte (Latin for “on its own motion”) to advance the hearing on the motion to dismiss, and announced its intention to grant the motion.
  • In response to comments made by the homeowners’ counsel that the hearing was not scheduled until two weeks later, the trial court responded, “I was told they are advanced to today, and whether you like it or not, I’m going to deal with them, and you can figure out what you’re going to with it.” According to the trial court, the case had “spun wildly out of control.” When asked by the homeowners’ counsel whether they could file their opposition that day, the trial court responded, “[t]he way it works is, file when you can. I’m not going to turn it down. I start reading. And when I get bored, stop reading. Put the good stuff up front.”
  • At the conclusion of the hearing, the trial court stated, “[a]t this point, it will all be under submission. I have to go back and review this. And don’t be surprised if you there’s not much changed between what the minute order will say and what I already said, but if get open — that’s why you’re here. You’re here to get me to think about it.”
  • Later that day, the homeowners’ counsel filed a 101-page opposition including exhibits.  However, the trial court’s minute order, which was entered the following day on July 11, 2018, rather than stating that the court had taken the matter under submission as the court said that it would, stated that it was the trial court’s decision to grant Petra Geoscience’s motion to dismiss.
  • After the trial court’s minute order was entered, the homeowners’ counsel filed a motion for reconsider on the ground that the trial court had not considered its 101-page opposition. The Court denied the motion for reconsideration without explanation and later entered a judgment of dismissal in favor of Petra.

Counsel for the homeowners appealed.

The Appeal

On appeal, the 4th District Court of Appeal noted that under Code of Civil Procedure section 583.210 even defendants identified as “Doe” defendants must be served within three years after an action is originally filed.

However, explained the Court of Appeal, the three year deadline is tolled under certain circumstances under Code of Civil Procedure section 583.240:

In computing the time within which service must be made pursuant to this article, there shall be excluded the time during which any of the following conditions existed:

(a) The defendant was not amenable to the process of the court.

(b) The prosecution of the action or proceedings in the action was stayed and the stay affected service.

(c) The validity of service was the subject of litigation by the parties.

(d) Service, for any other reason, was impossible, impracticable, or futile due to causes beyond the plaintiff’s control. Failure to discover relevant facts or evidence is not a cause beyond the plaintiff’s control for the purpose of this subdivision.

Under Code of Civil Procedure section 583.240, explained the Court of Appeal, “[i]t is self-evident that a party must be identified before it can be served”,  that “[i]n many cases, formal discovery is the only reasonable means of identifying a party,” and that “[i]n such cases, if a stay prevents discovery, it also, as a practical matter, impedes (affects) service.”

However, the Court of Appeal was careful to make two points with respect to subdivision (b) of Code of Civil Procedure section 583.240.

First, explained the Court of Appeal, tolling is appropriate where discovery is “reasonably necessary” in order to determine the identity of a “Doe” defendant. This does not mean that discovery is “essential” in determining the identify of a “Doe” defendant. The Court of Appeal gave the following example:

For example, suppose plaintiffs could have identified Petra by reviewing documents in the building inspector’s office, but Petra was only identified in an obscure footnote. We would not necessarily expect plaintiffs to find that information as a matter of course, and thus formal discovery would be reasonably necessary to identify Petra, even though it may have been technically possible to do so without discovery. A plaintiff need not go to extraordinary lengths.

Second, explained the Court of Appeal, if a stay did not prohibit service, and if the homeowners had a practical means of identifying Petra Geosciences as a “Doe” defendant without formal discovery, then no tolling would apply.

Thus, explained the Court:

[T]he proper focus here is on whether the stay affected service as a practical matter by depriving plaintiffs of the only reasonable means of identifying Petra. If plaintiffs did have other reasonable means of identifying Petra, then, because the stay itself did not directly prohibit service, the stay did not affect service. It is, after all, still a plaintiff’s burden to serve all parties within three years of filing the complaint. And if there were practical and reasonably discoverable means of doing so without formal discovery, then the stay did not impede service and the tolling provision does not apply.

However, the Court of Appeal remanded the case back to the trial court, holding that whether the trial court’s stay of the action practically impeded the homeowners from identifying Petra Geosciences as a “Doe” defendants was a decision for the trial court to make.


So, there you have it. In multi-party construction litigation cases, as most typically are, you need to name your “Doe” defendants within three years of filing your complaint, or be able to show that that you had practical ability to determine the identity of a “Doe” defendant within those three years.

California Court of Appeal Holds That the Right to Repair Act Prohibits Class Actions Against Manufacturers of Products Completely Manufactured Offsite

Gus Sara | The Subrogation Strategist | January 10, 2019

In Kohler Co. v. Superior Court, 29 Cal. App. 5th 55 (2018), the Second District of the Court of Appeal of California considered whether the lower court properly allowed homeowners to bring class action claims under the Right to Repair Act (the Act) against a manufacturer of a plumbing fixture for alleged defects in the product. After an extensive analysis of the language of the Act, the court found that class action claims under the Act are not allowed if the product was completely manufactured offsite. Since the subject fixture was completely manufactured offsite, the Court of Appeal reversed the lower court’s decision. The court’s holding establishes that rights and remedies set forth in the Right to Repair Act are not available for class action claims alleging defects in products completely manufactured offsite.

In Kohler Co., homeowners instituted a class action against Kohler, the manufacturer of water pressure and temperature regulating valves that were installed into their homes during original construction. The class action was filed on behalf of all owners of residential dwellings in California in which these Kohler valves were installed as part of original construction. The complaint asserted, among other claims, a cause of action under the Act. Kohler filed a motion for anti-class certification on the ground that causes of actions under the Act cannot be certified as a class action. The trial court denied the motion with respect to the Act but certified its ruling for appellate review. Kohler filed a petition with the Court of Appeals, arguing that certain sections of the Act explicitly exclude class action claims under the Act.

The Act revised and codified the laws applicable to construction defect claims related to newly constructed homes. The Act sets forth the standards for home construction, as well as rights and remedies for homeowners. When the Act was passed, it essentially became the exclusive remedy to individual homeowners for losses resulting from construction defects within their homes. The Act also established a builder’s right to attempt to repair a defect before a homeowner can file an action in court.

One of the essential purposes of the Act is to have construction defect disputes resolved expeditiously, and, if possible, to avoid litigation. The Act is specific as to the types of claims that fall under its purview and explicitly excludes certain types of claims. Section 896 of the Act states that the “title does not apply in any action seeking recovery solely for a defect in a manufactured product located within or adjacent to a structure.” The Act defines a “manufactured product” as “a product that is completely manufactured offsite.” In addition, section 931 identifies certain claims that are not covered by the Act, which include class actions. However, the last sentence of that section states that for “any class action claims that address solely the incorporation of a defective component into a residence, the named and unnamed class members need not comply with this chapter.”

The court acknowledged that while section 931 excludes class actions generally, the last sentence of that section sets forth an exception for class actions pertaining “solely [to] the incorporation of a defective component into a residence.” However, the court found that this provision needed to be reconciled with section 896, which excluded claims solely for defects within manufactured products. The court noted that a manufactured product qualifies as a defective component. Thus, in an effort to harmonize the two sections, the court held that the class action exception applies only to those claims related solely to the incorporation into the home of a defective component other than a product that is completely manufactured offsite. Based on this interpretation of the statute, the court reversed the lower court’s decision and granted Kohler’s motion for anti-class certification.

The Kohler Co. case narrowed plaintiffs’ ability to use the Act to pursue class action claims. The court’s interpretation of the Act establishes that plaintiffs cannot use the Act to assert class action claims for defects in manufactured products. Thus, the Kohler Co. decision reminds us that a cause of action under the Act is not permitted for any claims, whether individual or class actions, against manufacturers for alleged defects of products completely manufactured offsite. On the flipside, this decision also reminds us that product manufacturers are not afforded the defenses of the Act.

Class Actions Under California’s Right to Repair Act. Nope. Well . . . Nope.

Garret Murai | California Construction Law Blog | December 17, 2018

It’s the holidays. A time when family and friends, and even neighbors, gather together.

And nothing brings neighbors closer together than class action residential construction defect litigation.

In Kohler Co. v. Superior Court, Case No. B288935 (November 14, 2018), the Second District Court of Appeal addressed whether neighbors can bring class action lawsuits under the Right to Repair Act. For those who are regular readers of the California Construction Law Blog you’re familiar with the Right to Repair Act codified at Civil Code sections 895 et seq.

For those of you who aren’t here’s a short history. In 1998, in Aas v. Superior Court (1998) 64 Cal.4th 916, the California Supreme Court held that economic damages arising from construction defects, say a defective roof (as opposed to damage to your holiday gifts as a result of water damage resulting from the defective roof), are not recoverable if the basis for liability is negligence (e.g., faulty workmanship) or strict liability (e.g., defective materials).

To limit the application of the Aas case to newly constructed residential housing, including single family homes and condominiums (but not condominium conversions), the California legislature enacted SB 800 also known as the Right to Repair Act. The Right to Repair Act permits homeowners of newly constructed residential housing to sue for economic damages alone if new residential construction does not meet certain enumerated construction standards set forth under the Right to Repair Act and the homeowner satisfies the pre-litigation procedures of the Act.

One aspect the Right to Repair Act does not clearly address, however, is if homeowners can join together and bring a class action lawsuit under the statute.

Kohler Co. v. Superior Court

In Kohler, two homeowners, Joanna Park-Kim and Maria Cecilia Ramos, filed a lawsuit against Kohler Co. on behalf of themselves and others similarly situated  throughout California. The plaintiffs alleged that “Rite-Temp Pressure Balancing Valves” and “Mixer Caps” manufactured by Kohler, which are used to regulate water flow and temperature in household plumbing, were “corroding, failing, and/or will inevitably fail” and violated the construction standards of the Right to Repair Act.  Kohler sold approximately 630,000 of these valves and mixer caps in California during the relevant period.

While the case was pending, Kohler filed a motion claiming that the Plaintiffs could not bring a class action lawsuit under the Right to Repair Act. The trial court denied Kohler’s motion but certified its ruling for appellate review finding that the issue presented a controlling question of law upon which there were substantial grounds for differences of opinion.

The Appellate Court Decision

On appeal, the Second District Court of Appeal focused on Section 931 of the Right to Repair Act, which provides that, when construction defect claims combine causes of action or damages that are not covered under the Right to Repair Act (i.e., construction defects that are not among enumerated construction standards of the Act) with other claims involving construction defects that are covered by the Act, that those defects that are covered by the Act are to be administered according to the Act (i.e., the pre-litigation procedures of the Act). Specifically, Section 931 provides:

If a claim combines causes of action or damages not covered by this part, including, without limitation, personal injuries, class actions, other statutory remedies, or fraud-based claims, the claimed unmet standards shall be administered according to this part, although evidence of the property in its unrepaired condition may be introduced to support the respective elements of any such cause of action. As to any fraud-based claim, if the fact that the property has been repaired under this chapter is deemed admissible, the trier of fact shall be informed that the repair was not voluntarily accepted by the homeowner. As to any class action claims that address solely the incorporation of a defective component into a residence, the named and unnamed class members need not comply with this chapter.

Describing Section 931 as “somewhat obtuse,” the court noted that while the inclusion of the term “class actions” in the first sentence implies that class actions cannot be brought under the Right to Repair Act, the last sentence of the section that “any class action claims that address solely the incorporation of a defective competent into a residence” suggests that certain class actions might be able to be brought under the Act.

Looking to the legislative history of the Right to Repair Act, the Court of Appeals held that class actions may not be brought under the Right to the Repair Act, “with one very narrow exception.”

The Court of Appeal referred to a Senate bill analysis of SB 800 discussing the pre-litigation procedures of the Right to Repair Act, which stated: “The bill establishes a mandatory process prior to the filing of a construction defect action. The major component of this process is the builder’s absolute right to attempt a repair prior to a homeowner filing an action in court. Builders, insurers and other business groups are hopeful that this right to repair will reduce litigation.” The Court concluded that “it makes sense” that “the Legislature intended to exclude class actions for virtually any claim under the Act, because class actions make prelitigation resolution impossible.” Moreover, held the Court:

Even if the named plaintiffs bringing a class action comply with the prelitigation process, thus giving the builder of their homes an opportunity to attempt to repair whatever defect is claimed as to their homes, the builders of other homes are given no such opportunity with respect to the unnamed class members, thus thwarting one of the most significant aspects of the Act.

However, held the Court of Appeal, Section 931 does carve out one narrow, or, as the Court stated, one “very narrow” exception to the Right Repair Act.  And that is claims that solely involve the incorporation of a defective component into a home.

And, here, because the plaintiffs’ claims against Kohler alleged that the defective valves and mixers violated several of the enumerated construction standards set forth under the Right to Repair Act causing damage to other components in their homes, the Court of Appeal held that their claims did not solely involve incorporation of a defective component in their homes, and further, involved an allegedly defective manufactured product that is excluded under Section 896 of the Right to Repair Act, which excludes “any action seeking recovery solely for a defect in a manufactured product located within or adjacent to a structure.”

“In short,” held the Court of Appeal, the Right to Repair Act “does not permit class action claims except when those claims address solely the incorporation into the home of a defective component other than a product that is completely manufactured offsite.”

So there you go. Something for everyone this holiday season. Kind of.


Kohler Co. clarifies that, with one very narrow exception, class action lawsuits cannot be brought under the Right to Repair Act. Furthermore, while the Court did not directly address what constitutes a “defective component other than a product that is completely manufactured offsite,” it would seem that this is indeed, as the Court of Appeal stated, a very narrow exception that would exclude class action claims involving most  manufactured products except products built in whole or in part at a project. Maybe I’ve had too much eggnog, but I can’t even imagine what those types of products might be.

Deconstructing Construction Claims – Issues to Consider When Handling Construction Defect Subrogation

William L. Doerler and Victoria Phillips | CLM | May 3, 2018

Construction defect claims often are complicated by a variety of issues, including those related to the statute of repose and contractual bars to recovery. In order to maximize the subrogation potential for these claims, you should deconstruct any potential subrogation barriers and, upon identifying a potential target, avoid procedural barriers that impact the pursuit of subrogation claims.

Initial Investigation

When you receive a construction-related claim, you should immediately identify potential subrogation targets, such as the architect, general contractor, subcontractors, the developer, and material suppliers. As part of the identification process, first attempt to procure copies of all of associated contracts, subcontracts, and purchase orders. These documents are important because they often contain contractual barriers to recovery, including indemnification clauses, waivers of subrogation, insurance clauses, caps on liability, and contractual statutes of limitations.

In addition to securing copies of the applicable construction documents, you should also try to secure information that will help you identify when the accident occurred during the construction cycle. This information can impact the potential subrogation recovery because subrogation waivers and insurance clauses often refer to dates such as the substantial completion date or final payment date, gearing the applicability of these clauses to those dates.

Statutes of Limitations and Repose

In addition to gathering the documents identified above, you should consider whether claims against potential targets are barred by the applicable statutes of limitations or repose. If either bars the claim, then the claim has no true subrogation potential. Although the defendant can waive a statute of limitations defense by not asserting it in a timely fashion, the defendant cannot, generally, waive a statute of repose defense because this statute creates substantive, rather than procedural, barriers to pursuing a claim. If a statute of repose applies, then no cause of action arises after the repose date and, thus, after the repose date—say, 10 years after the date of substantial completion—there is no cause of action to pursue.

When considering the impact of any statute of limitations or repose, you should also review the applicable contract terms to ensure that the contract does not have a contractual statute of limitations clause or an accrual clause. Courts generally enforce these clauses as long as they are reasonable. Thus, if applicable, a contractual statute of limitations or accrual clause may bar your claim. For example, the American Institute of Architects (AIA) contract form A201-1997 has an accrual clause, §13.7.1, stating that claims accrue on a certain date, such as the date of substantial completion. If applicable, the clause bars any discovery rule that may otherwise apply and, effectively, turns the otherwise applicable statute of limitations into a statute of repose.

Of note is that some states, in addition to having a construction defect-related statute of repose, also have a statute of repose related to products liability claims. As such, to the extent that your potential target is a company that provided a product incorporated into the construction project, you may need to analyze the impact of both the construction defect statute of repose and the products liability statute.

Waiver of Subrogation

The most common contractual barrier to pursuing subrogation targets involved in construction losses is a waiver of subrogation clause. If you find such a clause in your construction contracts, then you should analyze the scope of the waiver clause to determine whether it applies.

To analyze the scope of the clause, determine whether the property damage at issue is covered by the clause. This analysis generally focuses on the meaning of the term “work” in the contract, as waiver of subrogation clauses typically apply to the proceeds of insurance applicable to the work. Thus, if the damage at issue relates to personal property or to parts of a building that were not the subject of the contract, then you may be able to pursue subrogation for damage to this non-work property.

However, the success of your subrogation claim may depend on whether the applicable jurisdiction follows the source-of-coverage approach to defining the scope of a waiver clause (based on whether the insurance policy that covered the work also covered the non-work property) or the nature of the damage approach. Although courts often refer to the source of the coverage approach as the “majority” approach, the U.S. District Court, Northern District of Mississippi, recently applied the nature of the damage approach in Liberty Mut. Fire Ins. Co. v. Fowlkes Plumbing. Thus, when analyzing the scope of a waiver of subrogation clause, your analysis should include an analysis of how the applicable jurisdiction interprets such clauses.

With respect to the AIA contract forms, the most recent version of the AIA General Conditions, A201-2017, includes a waiver of subrogation clause, §11.3.1, that references the term “project,” rather than the term “work.” Under this version of the waiver clause, owners and contractors waive all rights against each other and their subcontractors “for damages caused by fire or other causes of loss, to the extent those losses are covered by property insurance…applicable to the project, except such rights as they have to proceeds of such insurance.” The term “project” is defined in §1.1.4 as “the total construction of which the work performed…may be the whole or a part….” Arguably, this change clarifies that the waiver of subrogation clause refers only to the construction work itself. However, it remains to be seen how courts will interpret this change in the wording of the AIA waiver of subrogation clause.

Right to Repair Acts

As part of the process of identifying subrogation targets, claims professionals should be aware of the fact that many states have Right to Repair Acts. These acts generally require that the homeowner, and possibly the insurer, give notice of construction defect claims to the contractor or builder. Thus, to the extent that you identify a subrogation target, you should review the applicable Act to determine whether, as a subrogating insurer, your claims notice needs to comply with the terms of the applicable Act.

The issues discussed here offer only a partial review of some of the issues that subrogation claims professionals need to consider when handling a construction defect claim. The issues identified, however, should highlight the importance of analyzing the subrogation potential for construction-related claims during the early part of the claims investigation. When the issues you identify are complicated or warrant additional analysis, it is equally important to involve subrogation counsel early.