Update on SB355
As of January 30, 2002, SB355 appears for all practical purposes "dead in the water." The original text of the proposed bill has been omitted and its form has been changed to a declaration by the Legislature reading as follows:

The Legislature finds and declares that a divided California Supreme Court in Aas v. Superior Court (2000) 24 Cal.4th 627, recently held that developers who violate building codes and breach their duty of care by failing to install safety protections 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.

Given the above, it appears that the efforts of various pro-plaintiff groups to enact a legislative reversal of the California Supreme Court’s Aas decision have been turned back, at least for now.

Briefing Paper:
The California Supreme Court’s Aas Decision and Senate Bill 355 Which Could Legislate a Reversal of the Common Law Created by the Aas Decision

By Robert L. Sallander, Jr. & Dean C. Burnick

On December 4, 2000, the California Supreme Court, in its Aas v. Superior Court decision, resolved whether California homeowners or homeowners associations may recover tort damages from a developer, contractor or subcontractor for construction defects which have not caused personal injury or property damage. The answer of a majority of California Supreme Court Justices was clearly "no." The Aas decision represents a major victory for the construction industry in California.

However, since publication of the Aas decision, legislation has been introduced in the California State Senate that could, among other things, substantially modify and even reverse the common law created in Aas. This Briefing Paper discusses the Aas decision and Senate Bill 355 currently being considered by the California Legislature.

The Aas v. Superior Court Decision.
The California Supreme Court has held that when construction defects do not cause property damage, homeowners and homeowners' associations bringing actions in negligence against the developer, contractor and subcontractor that built the dwellings are barred from recovering damages for economic loss. Aas v. Superior Court of San Diego County, 24 Cal.4th 627 (2000).

Applying the principles of the economic loss doctrine, as established in Seely v. White Motor Co., 63 Cal.2d 9 (1965), the California Supreme Court held that a plaintiff suing for pure economic loss, without suffering property damage, is limited to its contractual and warranty_based remedies and cannot recover under negligence or strict liability theories. In so holding, the Supreme Court affirmed the Court of Appeal's decision in Aas v. Superior Court, 64 Cal.App.4th 916 (1998).

The plaintiffs in the consolidated Aas action consisted of an individual homeowner (Aas v. Superior Court) and an homeowners' association (Provencal Community Association v. Superior Court), both of which had sued defendants Lyon Communities, Inc. and William Lyon Co., the developer and general contractor, for damages arising from alleged construction defects. In particular, plaintiffs sought to recover the cost of repairing the alleged defects which violated building codes but did not result in physical damage to the property. The Aas plaintiffs also sought damages for diminution in the value of their residence.

Before trial commenced, defendants moved for orders in limine to exclude evidence of alleged defects that did not cause property damage. The Supreme Court affirmed the lower court's ruling granting the motions in limine. Finding that liability in an action brought in negligence is limited to damages for physical injuries, the court reasoned that recovery for economic loss is limited to contract and warranty actions in which the manufacturer has agreed to accept liability for the "lost benefit of the bargain, such as the cost of repairing a defective product or compensation for its diminished value."

The court rejected plaintiff's argument that the holding in J'Aire Corp. v. Gregory, 24 Cal.3d 799 (1979), allowed for recovery of economic damages. In J'Aire, the court permitted recovery of economic losses in a negligence action despite the absence of physical or personal injury on grounds that a special relationship, as established in Biakanja v. Irving, 49 Cal.2d 647 (1959), existed. The special relationship was defined by the J'Aire court in a six_factor balancing test. The Aas court found the facts before it did not "justify a broad rule permitting recovery of repair costs unaccompanied by property damage or personal injury." The court held that when construction defects have not caused physical damage, no special relationship could exist because under the third J'Aire factor, there was a lack of certainty that the plaintiff had suffered injury. The court found that the fundamental prerequisite for a tort claim, the existence of harm, was lacking because the harm alleged was so speculative that it was not "cognizable in tort."

Senate Bill 355 Authored by Senator Martha Escutia
In direct response to the Aas decision, on February 21, 2001, State Senator Martha Escutia introduced Senate Bill No. 355 -- a bill designed to substantially modify, and some would say reverse, the law created by the Aas decision ("SB 355").

According to the Legislative Counsel’s Digest of the Bill, SB 355 "would provide that a person may sue in tort to repair all construction defects, as defined, that meet specified criteria and that the provisions of the bill shall apply to actions arising on, before, or after January 1, 2001. The bill would also state the intent of the legislature."

In particular, SB 355 proposes to add Section 1714.16 to the California Civil Code. SB 355 would, among other things, pronounce that the majority ruling in Aas "hurts homeowners across the state who have discovered that their homes have defective electrical wiring or lack required fire walls or seismic reinforcement but cannot recover the cost of repairing the shoddy workmanship." Adopting concepts raised by Chief Justice George in his Dissenting Opinion in Aas, SB 355 would also pronounce that the majority ruling in Aas "offends both established common law principles and basic common sense ... by requiring a homeowner to wait to suffer a personal tragedy in order to recover damages to repair known serious building code safety defects caused by negligent construction."

SB 355 would also modify the holding in Aas by enabling plaintiffs to sue in tort for the cost of repairing construction defects which (A) have resulted in damage to any part of the improvement, including damage that occurs only within a single component, as well as the cost of repairing all similar defects even though no known consequential damage has yet occurred, and those which (B) if left unrepaired would pose a danger to the life, health, safety, or property of the occupants of the improvement in the event of catastrophe regardless whether those defects have yet caused consequential damage.

Under SB 355, the phrase "construction defect" would be defined to mean a defect in design, materials, or workmanship that (1) results from an act or omission of the builder, or an architect, engineer, subcontractor or other responsible agent for the builder, (2) occurring during the original construction work or any warranty repair work, (3) rendering the improvement or any part of it noncompliant with either the applicable codes or ordinances, the plans, specifications, or calculations for the project, or the reasonable expectations of the consumer, and (4) materially affects either the building site work (i.e., subsurface investigations, earthwork, protective drainage systems for slopes, or landscape irrigation systems), the substructure (i.e., soils, concrete slabs, retaining wall, foundations, or basements, including waterproofing and drainage), the building shell (i.e., floors, walls, windows, doors, roof, eaves, or interior elements like interior partitions, doors, stairs and stair cases, drywall, fire resistive assemblies), or building services or exterior components (i.e., fireplaces, chimneys or flues, balconies, decks, patios and plumbing).

While SB 355 has been introduced and sent to the California Committee on the Judiciary, it is far from being enacted into law. Before any vote by the State Assembly and Senate, it must first pass the Judiciary Committee, which, as of the date of this writing, has not conducted its first hearing.