The Subrogation Strategist

There has been a growing trend among states to enact statutes that impose specific notice requirements when bringing claims against construction professionals. These notice requirements may apply to the subrogated carrier bringing a claim against a construction professional for certain types of damages. Failure to comply with the notice requirements can result in a dismissal of the subrogation action. Accordingly, caution must be exercised when notifying construction professionals of certain claims, and not just claims for construction defects.

Recently, in Vision 20/20 Ltd. v. Cameron Builders Inc., 2017 Tex. App. LEXIS 5596 (Tex. App. - Houston), the Court of Appeals of Texas clarified the notice required by the Texas Residential Construction Liability Act (RCLA)(Tex. Prop. Code §§ 27.001- 007), holding that the RCLA requires notice of any action involving damages arising from a construction defect. In Vision, a plumbing failure allegedly caused water damage to the insured’s home and personal property. The subrogated carrier filed suit against the general contractor in the name of its insured and brought claims of negligence, breach of warranty, and violations of the Texas Deceptive Trade Practices Act. The general contractor filed a motion for summary judgment, asserting that the claims were barred because written notice of the construction defect and the resulting damages was not provided to the builder, as required by section 27.003(a)(2) of the RCLA. The general contractor also asserted in its motion that it was not provided with an opportunity to inspect and offer to repair the defect and the resulting damages, as required by section 27.003(a)(2) of the RCLA. Section 27.003(a)(2) states that the failure to comply with the notice required by section 27.004 will bar a subrogation claim.

In Vision, the insurer conceded that its failure to comply with section 27.004 precluded recovery of the costs to repair the failed plumbing line itself, but argued that the resulting damages to the structure were still recoverable. The insurer argued that it was not required to notify the general contractor of the physical damage to the residence because such damage was separate from the construction defect. The trial court granted the general contractor’s motion for summary judgment and the insurer appealed.

The Court of Appeals analyzed the pertinent RCLA provisions and examined the definition of the term “construction defect” in § 27.001(4) of the statute. It focused on the fact that the legislature included the phrase “may include” in the definition, which states that a construction defect “may include [emphasis added] any physical damage to the residence […] proximately caused by a construction defect.” Tex. Prop. Code. § 27.001(4). Concluding that the term “construction defect” is to be broadly defined, the court ultimately held that, when an action alleges claims that arise from a construction defect, the notice and other requirements set forth in the RCLA must be met. In other words, the notice requirement applies to all damages to a residence caused by a construction defect, not just to the construction defect itself. The court also held that such requirement extends to the subrogated party.

The Vision case is a good reminder to closely scrutinize the notice requirements of the governing jurisdiction when bringing claims against construction professionals. Caution should be exercised to ensure that repair act notice letters are timely, contain the required information, and otherwise meet the statutory requirements. Similarly, claims against architects and other design professionals involved with the construction work should also be carefully evaluated to ensure that any notice requirements are met.