The doctrine of caveat emptor – or buyer beware – has long been a guiding principal in the law. The Pennsylvania Superior Court recently decided a case that marks a significant change in that approach though. In Conway v. Cutler Group, 2012 Pa.Super. 242, the Superior Court held that a builder can be liable to subsequent home buyers beyond the initial purchaser for breach of the implied warranty of habitability.
In this case, the Conways purchased their home from another couple that bought it new from Cutler. The home was built in 2003 and was sold to the Conways in 2006. Approximately 2 years after buying the home, the Conways noted water infiltration issues and hired an expert to look into the issue. It was determined that there were latent defects causing the problem and a recommendation was made to remove all the stucco on the house to remediate the problem.
The Conways brought suit against Cutler asserting a single claim for breach of the implied warranty of habitability. The prior homeowners were not sued and no contract claims were alleged. After the trial court dismissed the claim on preliminary objections, the Superior Court reversed the trial court and held that the claim had merit.
The Superior Court’s logic centered on the fact that the implied warranty of habitability is based on public policy considerations that exist regardless of the existence of a contract. While the transaction that initiates a contract can often be a trigger, it is not a requirement. Homeowners are permitted to reasonably rely on the superior knowledge and expertise of builder regardless of whether they purchase the home directly from the builder or not. A standard home inspection will not catch latent defects and it seems more appropriate, according to the Court, to place the risk of repairing those defects which are “hidden” on the builder responsible for them and most able to spread the cost of repair around.
The Court’s opinion has legal logic to it, but it constitutes a significant change in the law that will have far reaching effects. Home builders, and perhaps other construction companies if the case is expanded into other arenas of construction, are now exposed to a larger risk pool for a longer period of time. Many insurance products will not cover losses like the one raised in this lawsuit because of the “your work” exclusion. This could effectively drive up the cost of business for home builders because they will need to find ways to offset the increased risk of claims by subsequent homebuyers previously thought to be unable to pursue them.
Cutler has indicated its intention to appeal to the Supreme Court, which will have the chance to affirm this decision or overturn it if they accept the appeal.
