When finding and hiring contractors to perform construction work, property owners rely on information provided by the contractor, especially relating to the experience, skill and specialized knowledge they possess to perform the requested job. But, what happens when the contractor does not have the adequate experience and knowledge to perform the work properly? According to the New Jersey Supreme Court Appellate Division, such a contractor may be liable to the owner for consumer fraud, which provides for triple damages as well as recovery of attorneys’ fees and costs of suit.

Wanting an outdoor tennis court, the Hudson Harbour Condominium Association hired Oval Tennis, Inc. to install an open-celled Premier Court (specific brand of tennis court) on an existing concrete slab. Oval, an “experienced” tennis court installer, represented to the Association that it was a certified Premier Court installer, was familiar with the requirements of the job, possessed sufficient experience to properly install the court and employed trained technicians to perform the work. Despite the contract calling for an open-cell court and Oval’s representations, Oval installed a closed-cell, non-breathable court, which was unsuitable for the concrete surface it was installed upon.

Immediately after installation, the Association started noticing problems with the new court, which included blisters near the net, holes, ripples, bubbling and delaminating of the court surface. These conditions were a direct result of Oval’s failure to install the court with the contracted open-cell surface material, which would allow vapor to push through the breathable court surface. Instead, the closed-cell surface did not allow vapor to pass through, ultimately resulting in a buildup of vapor and moisture trapped underneath the court which caused the problems on the surface.

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Read the first part of this article here.

You’re in your car heading home when you turn into your condominium development. That road you just entered, it’s a common element. On your route to your unit you pass by the club house and community pool— these are common elements as well. You’re finally home as you pull into your driveway—which, by the way, probably isn’t a common element, but rather most likely a limited common element. You enter your unit. In the case of a condominium, does your unit qualify as a common element, limited common element, or strictly unit owner property? The answer, in fact, is that the unit you just entered is likely a combination of all three. This article will take a closer look at this distinction.

A typical condominium development is comprised of numerous structures that usually include the building or buildings that house individual condominium units, more often than not a club house as well as other lands and improvements such as community pools, fitness centers, playgrounds, etc. These buildings, lands and improvements can be classified as common elements, limited common elements, or unit property. When you purchase a unit in a condominium development, you are in fact not only purchasing ownership rights to a particular unit, but are also acquiring an interest in the common elements and limited common elements. So, what are these common and limited common elements and how do they differ from unit property?

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Generally speaking, a contractor’s commercial general liability (“CGL”) policy is designed to cover personal injury or property damage caused by an accident resulting from the contractor’s work. The policy is not meant to be a guarantee of the contractor’s work and therefore does not cover damages to the work itself – instead, these are known as “business risk” damages. The concept that is inherent in every agreement for the performance of construction work is the risk that the work will be done improperly.

By selecting a particular contractor, the owner has to make a business judgment as to the qualifications and reliability of the selected contractor, and therefore assumes the risk that the work will be done incorrectly. If the work is done improperly and needs to be corrected, the contractor, and ultimately the owner, bears the burden of repairing or fixing that faulty work. The contractor’s insurance is not a performance bond guaranteeing the work; instead, the commercial general liability insurance is designed to cover any unexpected damages that arise from the contractor’s work, such as damage to other property caused by the faulty work.

Consider a roofer hired to install a new roof on a building. Once completed, the roof is the roofing contractor’s “work.” If the roofer installs the wrong type of shingles, but does everything else correctly, the only “damage” to speak of would be to the roof shingles themselves, i.e. the roofer’s work. The cost of replacing the shingles is therefore that “business risk” not covered by insurance.

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Pursuant to the Planned Real Estate Development Full Disclosure Act (“PREDFDA”), N.J.S.A. §45:22A-21 et seq., a developer of a proposed condominium development that is subject to the registration requirements of PREDFDA must establish an association responsible for the management of the common elements and facilities of the proposed condominium development. N.J.S.A. §45:22A-43. The developer is required to organize the association prior to the filing of the master deed or declaration of covenants and restrictions. The association may be established as a for-profit or nonprofit corporation, unincorporated association, or any other form permitted by law.

No matter the nature of the association, its responsibility is the same – “the administration and management of the condominium and condominium property, including but not limited to the conduct of all activities of common interest to the unit owners.” New Jersey Condominium Act (the “Condo Act”), N.J.S.A. §46:8B-12. The powers of the association are vested in an executive board that is tasked with carrying out the responsibilities of the association. Upon the formation of the association, the developer will appoint representatives to sit on the executive board and carry out the duties of the association. However, as the developer begins to sell units in the condominium development, pursuant to PREDFDA and the Condo Act, the developer is required to surrender control of the executive board to unit owners elected by the members of the association. This process is known as “transition.”

PREDFDA and the Condo Act require that no later than 60 days after the sale of 25% of the “lots, parcels, units or interests, not fewer than 25 percent of the members of the executive board shall be elected by the owners.” N.J.S.A. §45:22A-47; see also N.J.S.A. §46:8B-12.1. Once the developer sells 50% of the units, etc., within 60 days thereafter 40% of the membership of the executive board is to be comprised of unit owners elected by the owners. Final transition, and complete surrender of the executive board by the developer to the unit owners, occurs once the developer has sold 75% of the units in the development.

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A New Jersey trial court granted summary judgment in favor of Selective Insurance Company holding that the “continuous trigger” theory does not provide insurance coverage subsequent to the manifestation of damages that arose from a subcontractor’s negligence in the construction of a condominium development. The issue arose in the matter of Cypress Point Condominium Association v. Selective Way Insurance Company, et al., Docket No. HUD-L-936-14, 2015 N.J. Super. Unpub. LEXIS 721 (N.J. Super., Hudson Cnty. Mar. 30, 2015) (“Cypress Point”).

“The ‘continuous trigger’ theory holds that an occurrence occurs under an insurance policy each time damage accrues over a continuous period of time, from ‘exposure to manifestation’.” Cypress Point, at *12. Courts developed the “continuous trigger” theory to counter scientific uncertainties surrounding initial manifestations of damages typically at issue in environmental, toxic tort, and delay manifestation property damage claims. Id.

In Cypress Point, the Cypress Point Condominium Association (the “Association”) filed a Declaratory Judgment Action against Selective Way Insurance Company (“Selective”) seeking a declaratory judgment that Selective owed a duty to indemnify its insured, MDNA Framing, in connection with an underlying construction defect action filed by the Association. The Association filed an amended complaint in the underlying action on June 12, 2012, bringing claims against MDNA Framing, which was contracted to perform framing and window installation work in connection with the construction of the Cypress Point condominium development. Construction of the development commenced in 2002 and was substantially completed in 2004. Subsequent to the completion of construction, unit owners began to experience water infiltration around the interior windows. The Association’s liability expert found numerous defects related to MDNA Framing’s work, including missing flashings, a lack of a continuous water management system, and improper sealant application around the windows. The Association’s liability expert issued his initial report opining on these deficiencies on June 30, 2012.

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A unanimous New Jersey Supreme Court opinion has affirmed the rights of an aggrieved plaintiff to recover counsel fees incurred in prosecuting relief through a declaratory judgment; enforcing a duty to defend owed by a general liability carrier to a contractor defendant in a construction defect action.

In Occihifinto v. Olivo Constructionn, Inc., et als, the plaintiff hired a masonry contractor to perform work on an addition to plaintiff’s warehouse. Plaintiff sued the mason and the mason’s general liability carrier (Mercer) refused to defend or indemnify, instead filing a declaratory judgment action. Plaintiff aggressively prosecuted relief against the carrier in the declaratory judgment action, acting as a surrogate for the insured masonry contractor.

Although the trail court and Appellate Division ruled otherwise, the Supreme Court unanimously affirmed the aggrieved plaintiff’s entitlement to recover his counsel fees under R.4:42-9 (a) (6), which provides for an award of counsel fees in “an action upon a liability or indemnity policy of insurance in favor of a successful claimant.”

The Supreme Court determined the plaintiff was a successful claimant by vindicating his position in the declaratory judgment action; establishing the carrier’s duty to defend the mason. The award of counsel fees was allowed to stand, even though the plaintiff was unsuccessful in establishing liability in the underlying litigation.

This is not only the correct outcome, but should embolden and inspire aggrieved plaintiffs to take aggressive action in declaratory judgment actions spawned by underlying defect claim litigation. Insured defendant contractors are often disinclined to aggressively defend their position or lack the incentive and resolve of the underlying plaintiff; whose ability to recover is contingent upon gaining access to available insurance proceeds, often as the singular means to obtain relief.

This ruling is soundly based upon the express language of the rule, which provides for this remedy, consistent with the practical realities presented by these types of actions. Where the obligation to carry the burden of prosecuting what would otherwise be the insured’s rightful position to otherwise vindicate is foisted upon the underlying plaintiff, logic dictates that the court avail the plaintiff of the basic relief otherwise available to the insured.

This should give insurance carriers otherwise inclined to shirk their rightful responsibility to provide a defense or indemnity under a general liability policy in the construction defect context, to think twice before arbitrarily seeking to avoid responsibility. Given the additional consequence of exposure to counsel fees, one can only hope that insurance carriers will be more circumspect in determining when and whether to reserve their rights, or seek to deny coverage. At a minimum, this ruling should serve to level the playing field in this arena, balancing the scales decidedly in favor of an aggrieved plaintiff.

Purchasing a new construction home is an exciting endeavor. Once all the design options and custom changes are finalized, the wait begins. While all builders discourage purchasers from visiting the construction site, most builders will accommodate requests for walkthroughs. It is always a good idea, however, to try and include a provision in the sale contract or addendum providing you, the homeowner, the right to request and receive access to the site upon reasonable notice.

So, what should you do while on site? The most important thing you can do is take pictures (a lot of pictures). Specifically, you want to capture critical areas such as around windows and doors, at roof-to-wall intersections, and to the extent visible, any installed flashing such as building paper, drip caps, Tyvek, etc. Some more obvious things to look for are wall locations, number and placement of windows and doors, proper room layouts, etc. If you are so inclined, you may want to hire a professional engineer or architect to perform a cursory walkthrough with you and provide you with comments and concerns. Once the walls get covered up, it becomes much more difficult, if not impossible, to observe hidden construction elements and/or fix mistakes.

If you can, you should get to know the superintendent and ask a lot of questions. You should also request to see a copy of the plans and take pictures of the various details and specifications. Additionally, you may want to fill out an OPRA (Open Public Records Act) request form and submit it to the construction office. You are entitled to see any and all public records attendant to your build lot, which includes permit applications, issued permits, inspection reports, violation notices, filed plans and drawings, etc. This is a good way to gather information and stay informed about the construction process.

Finally, if you have the opportunity, you should visit your house during a heavy rain event and observe the conditions around windows and doors from the inside. This is the best time to identify any leaks around penetrations such as windows and doors. Once the drywall is installed, if there are leaks, you will not see any manifestations of water intrusion for many months, sometimes even years. By then, the Developer will likely no longer be responsive and the new homeowner warranty program will essentially be useless.

Buying a home is one of the most rewarding, yet potentially costly, life experiences. Construction takes months, sometimes years, and despite the existence of building codes and municipal oversight, mistakes happen. Due to the concealed nature of construction (e.g. important construction elements get closed up by siding, cladding, and drywall), mistakes are hidden and unidentified until the consequences of those mistakes begin to manifest. Water intrusion is the hallmark of construction defects and is almost always an indicator that construction deficiencies exist. Unfortunately, by the time the water manifests itself inside the house, the builder and/or seller are long gone, leaving the homeowner with the expense of performing investigations and subsequent repairs.

So what should a prospective homebuyer look for when evaluating homes to purchase? First, an understanding of basic home construction is necessary. The name of the game is simple: manage water. The intent behind every home design is water management and drainage. Thus, regardless of whether a house is clad with stucco, stone, brick, or vinyl siding, all those systems have to be installed in such a way as to protect the home from the elements and manage any water that gets behind the cladding system. While visual observations from the exterior will not reveal whether necessary drainage provisions exist behind the cladding (i.e. building paper, flashings, and moisture barriers); certain drainage provisions are nevertheless observable. For instance, once water gets behind the cladding it needs to be able to drain back out through small holes at the base of the cladding. Therefore, you should be able to observe spaces or holes around the areas where the cladding terminates at the base of the home.

Additionally, proper slope is extremely important for adequately managing water and preventing water intrusion. Balconies, decks, exterior window sills, decorative trim, and any other protruding surface that has the potential to hold water must be sloped away from the structure to direct water away from the house. Otherwise, water is directed towards the building and will find a way inside.

Any signs of cracking, buckling, bending, or sprawling of any piece of the exterior cladding should be investigated further. While home inspectors are licensed and trained, they are not professional engineers and do not always recognize the existence or potential for construction defects. If you are serious about purchasing a home, hire a professional engineer to perform a visual inspection and draft a report. It will be money well spent and may save you from buying a home that will require expensive repairs soon after you move in.

No matter whether you are a first time home buyer or veteran repeat purchaser chances are you have been mentally preparing for the deluge of paper that accompanies this major purchase. The sheer magnitude of documents is understandably overwhelming. Document after document is slid across the shiny, polished conference table in your attorney’s office. At a certain point you become automated; sign here, initial there—a few hours later and you may have just signed your first born child away. Yet, when purchasing a condominium or townhouse keep your wits about you and break out your reading glasses because there is one document you want to read—the Public Offering Statement.

A developer of a community development is required under New Jersey’s Planned Real Estate Development Full Disclosure Act to register the planned development with the Division of Housing and Development in the State Department of Community Affairs. In connection with its registration, the developer must also submit a proposed Public Offering Statement. Once approved, the Public Offering Statement must be freely available to all prospective purchasers prior to the closing of the unit.

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In a recent decision in Kane Builders, Inc. v. Continental Casualty Company, the United States District Court in New Jersey remanded back to state court the determination of whether Continental owed the builder defense and indemnity in connection with an underlying construction defect case which had been playing out in state court.

As is typical in these matters, the insurance carrier filed a declaratory judgment action in federal court notwithstanding the pendency of a then existing state court construction defect action instituted against Kane Builders, its insured. The underlying plaintiff asserted claims for damages for alleged defective building construction and other claims. The insured instituted claims in the state court action, also, putting in play whether Continental, its insurance carrier providing covered coverage under a general liability policy, was obligated to provide the builder with a defense and indemnity in the pending state court action.

The District Court ruled that logic dictated having the state court judge, who was overseeing the construction action, also address the coverage issues between the builder defendant and its carrier. Judicial economy was thus served by avoiding duplicative, piecemeal litigation. The District Court was unimpressed and held that the federal forum held “no special call,” under the circumstances.

We have seen it is typical in these circumstances for insurance carriers to want to litigate coverage issues in federal court, presumably because carriers see it as a more hospitable forum. As was the case here, logic dictates that coverage issues be adjudicated alongside construction defect and other underlying claims typically filed, as in this case, in the state court. This case demonstrates that federal judges are willing to remand matters back to state court under these circumstances.

It is not uncommon in construction defect “transition” litigation to have declaratory judgment actions filed by one or more defendants during the pendency of the litigation, as insurance coverage issues are of significance in these matters and carriers don’t always readily acknowledge their obligations to provide defense and indemnity, depending upon the language of the policy or policies at issue.

Defendants in these cases should not be bashful about putting coverage issues in play and we have seen that many courts are willing to also acknowledge the rights of the underlying plaintiff in these matters (often a Condominium Association) to advance coverage claims when, for example, the insured defendant builder or subcontractor is either no longer in business or lacking sufficient motivation to pursue its own carrier more aggressively.

We have argued successfully that while a judgment against a carrier during the pendency of an underlying construction defect claim can be premature, a determination as to whether coverage is afforded can and sometimes should be made while the underlying case is ongoing, assuming sufficient facts are available, or the court is in a position to make a coverage determination. The rules do not prevent this, procedurally, although insurance carriers often oppose claims by the underlying plaintiff directly against the carrier based upon case law which we have seen is sometimes not directly supportive of the positions advanced. This is an interesting issue, which tends to rear its head reasonably often in these cases.

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