CACI 4551 Affirmative Defense—Statute of Limitations—Latent Construction Defect (Code Civ. Proc., § 337.15)

New December 2011; Revised November 2018

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Give this instruction if the defendant asserts the running of the statute of limitations in Code of Civil Procedure section 337.15 as a defense. This section provides a 10-year outside limitation period for harm caused by a latent construction defect regardless of delayed discovery.

The jury may also be instructed on the limitations periods for the particular theories of recovery alleged. (See, e.g., Code Civ. Proc., §§ 338 [three years for injury to real property], 337 [four years for breach of written contract].) However, for latent defects, delayed discovery (see CACI No. 455, Statute of Limitations—Delayed Discovery) generally defeats that otherwise applicable statute.

The most likely question of fact for the jury is the date of substantial completion. The statute provides four possible events, the earliest of which may constitute substantial completion of an improvement. (See Code Civ. Proc., § 337.15(g).) The latest date is one year from cessation of all work on the improvement. However, substantial completion of an improvement may occur before any of these dates. (See Nelson v. Gorian & Assocs. (1998) 61 Cal.App.4th 93, 97 [71 Cal.Rptr.2d 345].) The statute of limitations may start to run at a later date against the developer if the development includes many improvements. (Id. at p. 99; cf. Schwetz v. Minnerly (1990) 220 Cal.App.3d 296, 298 [269 Cal.Rptr. 417] [“developer” can be an “improver” and a “development” is a “work of improvement” for purposes of subsection (g)].) For further discussion of substantial completion, see the Directions for Use to CACI No. 4532, Owner’s Damages for Breach of Construction Contract—Liquidated Damages Under Contract for Delay. See also CACI No. 4524, Contractor’s Claim for Compensation Due Under Contract—Substantial Performance.

Code of Civil Procedure section 337.15 does not apply to construction defect claims within the Right to Repair Act (Civ. Code, § 895 et seq.). (Civ. Code, § 941(d).) The act applies to all claims for property damage or economic loss except for breach of contract, fraud, personal injury, or violation of a statute. (Civ. Code, § 943(a); see McMillin Albany LLC v. Superior Court (2018) 4 Cal.5th 241, 249 [227 Cal.Rptr.3d 191, 408 P.3d 797]; see also Civ. Code, § 941 [statute of limitations under Right to Repair Act].)

•Statute of Limitations: Latent Defects. Code of Civil Procedure section 337.15.

•“The purpose of section 337.15 has been stated as ‘to protect developers of real estate against liability extending indefinitely into the future.’ … [We have] noted that ‘[a] contractor is in the business of constructing improvements and must devote his capital to that end; the need to provide reserves against an uncertain liability extending indefinitely into the future could seriously impinge upon the conduct of his enterprise.’ ” (Martinez v. Traubner (1982) 32 Cal.3d 755, 760 [187 Cal.Rptr. 251, 653 P.2d 1046], internal citations omitted.)

•“A ‘latent’ construction defect is one that is ‘not apparent by reasonable inspection.’ As to a latent defect that is alleged in the context of the challenged causes of action here—negligence, breach of warranty, and breach of contract—three statutes of limitations are in play: sections 338, 337 and 337.15. ‘The interplay between these [three] statutes sets up a two-step process: (1) actions for a latent defect must be filed within three years (§ 338 [injury to real property]) or four years (§ 337 [breach of written contract]) of discovery, but (2) in any event must be filed within ten years (§ 337.15) of substantial completion.’ ”(Creekridge Townhome Owners Assn., Inc. v. C. Scott Whitten, Inc. (2009) 177 Cal.App.4th 251, 257–258 [99 Cal.Rptr.3d 258], internal citations omitted.)

•“The test to determine whether a construction defect is patent is an objective test that asks ‘whether the average consumer, during the course of a reasonable inspection, would discover the defect. The test assumes that an inspection takes place.’ This test generally presents a question of fact, unless the defect is obvious in the context of common experience; then a determination of patent defect may be made as a matter of law (including on summary judgment).” (Creekridge Townhome Owners Assn., Inc., supra, 177 Cal.App.4th at p. 256, internal citations omitted.)

•“Our reading of the express words of section 337.15, our giving consideration to its legislative history, and harmonizing that section in the context of the statutory framework as a whole, leads us to conclude that section 337.15 does not limit the time within which direct actions for personal injury damages or wrongful death may be brought against the persons specified in the statute.” (Martinez, supra, 32 Cal.3d at p. 759.)

•“The 10-year period commences to run in respect to a person who has contributed towards ‘an improvement’ when such improvement has been substantially completed irrespective of whether or not the improvement is part of a development.” (Liptak v. Diane Apartments, Inc. (1980) 109 Cal.App.3d 762, 772 [167 Cal.Rptr. 440].)

•“In 1981, the Legislature codified the holding in Liptak by adding subdivision (g) to section 337.15. ‘The Senate Committee on Judiciary and the Senate Republican Caucus digests for the bill that became Code of Civil Procedure section 337.15, subdivision (g) state in pertinent part: “ ‘In [Liptak], the [C]ourt of [A]ppeal held that with respect to a developer, the ten-year limitation period does not commence until the development is substantially completed. [¶] With respect to a person who has contributed to an improvement on the developed property, the court held that the period commences when that particular improvement has been substantially completed, regardless of the completion time of the development itself. [¶] AB 605 would codify the Liptak holding on these issues.’ ” [Citation.]’ ” (Nelson, supra, 61 Cal.App.4th at pp. 96–97, internal citations omitted.)

•“Turning to the plain meaning of the statute as well as the legislative intent of enactment of section 337.15, subdivision (g), it is clear the intent was to define what event triggered the 10-year period and not what label is used to define the person who performed the work of improvement. The particular development or work of improvement can be one ‘improvement’ such as grading. It can also be a ‘particular development,’ i.e., a completed structure or dwelling. When the work of improvement meets one of the four criteria of section 337.15, subdivision (g), the ‘improver’—whether an architect, engineer, subcontractor, contractor, or developer—is entitled to raise the provisions of section 337.15, subdivision (g), as a bar to an action which seeks damages for latent defects after the 10-year period has passed.” (Schwetz, supra, 220 Cal.App.3d at p. 308.)

•“Appellants claim that the 10-year period is calculated pursuant to section 337.15, subdivision (g)(1)–(4), which describes four events: (1) a final inspection, (2) the notice of completion, (3) use or occupancy of the property, or (4) termination or cessation of work for one year. Subdivision (g), however, states that the 10-year period ‘shall commence upon substantial completion of the improvement, but not later than’ the occurrence of any one of the four events described in subdivision (g)(1) through (g)(4). … [¶] The trial court correctly ruled that the notice of completion date (§ 337.15, subd. (g)(2)) did not control if the improvement was substantially completed at an earlier date.” (Nelson, supra, 61 Cal.App.4th at p. 97, original italics.)

•“ ‘As used in section 337.15 “an improvement” is in the singular and refers separately to each of the individual changes or additions to real property that qualifies as an “improvement” irrespective of whether the change or addition is grading and filling, putting in curbs and streets, laying storm drains or of other nature.’ ” (Nelson, supra, 61 Cal.App.4th at p. 97.)

•“The purpose of section 337.15 and its definition of the ‘substantial completion’ that begins the running of the 10-year period make clear that the statute’s protection applies to claims for damage due to defects in how an improvement was designed and constructed, not to claims based on how the improvement was used after its construction is complete and independent of the manner in which it was designed and constructed.” (Estuary Owners Assn. v. Shell Oil Co. (2017) 13 Cal.App.5th 899, 915 [221 Cal.Rptr.3d 190], original italics.)

•“[T]he [Right to Repair Act] leaves the common law undisturbed in some areas, expressly preserving actions for breach of contract, fraud, and personal injury. In other areas, however, the Legislature’s intent to reshape the rules governing construction defect actions is patent. Where common law principles had foreclosed recovery for defects in the absence of property damage or personal injury the Act supplies a new statutory cause of action for purely economic loss. And, of direct relevance here, even in some areas where the common law had supplied a remedy for construction defects resulting in property damage but not personal injury, the text and legislative history reflect a clear and unequivocal intent to supplant common law negligence and strict product liability actions with a statutory claim under the Act.” (McMillin Albany LLC, supra, 4 Cal.5th at p. 249, internal citations omitted.)