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.

It is no secret that insurance policies are famous for containing convoluted language. The average insured likely has no clue what is and is not covered. Little solace can be found in referring to the conspicuous “Definitions” section; ultimately no more than a trap to trick unsuspecting policyholders into believing that any ambiguities that arise will be easily rectified. Insurance is big business and carriers don’t want to have to pay claims. At the end of the day, coverage is all about semantics and carriers use the complicated wording of their policies to create plausible ways to deny claims otherwise assumed to be covered. Carriers bank on the fact that many insureds either don’t know the law (and will simply accept the carrier’s interpretations) or can’t afford to fight the carrier in court. Carriers save significant dollars each year because some insureds don’t pursue questionable coverage denials. Radical change is not likely on the horizon. Some good news, however, is that there is a body of policyholder-friendly case laws in New Jersey on the issue of ambiguity.

A recent unpublished decision out of the U.S. District Court for the District of New Jersey reaffirmed the long-standing principal that ambiguities in insurance policies must be construed in favor of the insured. In Gregory Packaging, Inc., v. Travelers Prop. Cas. Co. of Am., the Court found that a shutdown of the insured’s factory caused by the discharge of an unsafe amount of ammonia constituted a “direct physical loss or damage” to the property; a condition precedent to coverage. The carrier argued that a physical change of, or alteration to, the property, is necessary to trigger coverage. The Court disagreed and found that an accident that renders a building unfit for occupancy, and in need of remediation, amounts to a direct physical loss. Here, the release of ammonia physically transformed the air, rendering the facility dangerous. Accordingly, the Court determined that coverage cannot be denied on the basis that there was not a “direct physical loss.”

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Unitowners in condominium associations and homeowners in homeowner associations are often confused about the legal responsibilities of design professionals, general contractors, subcontractors and municipal building officials and building inspectors regarding construction of their homes. This blog is intended to briefly clarify and explain the relationship among these various people and entities.

Architects are licensed professionals who design buildings to meet the needs of the owner. They are required to adhere to all applicable building codes and standards in the industry. To that end the architect creates construction drawings, details, and specifications to direct the subcontractors as to the materials or systems they are to use and how those materials and systems are to be integrated into the overall construction in such a manner as to satisfy the design intent of the architect. Architects have to have an overall understanding of the systems and materials being designed into a building and the requirements of the applicable building codes governing construction. The scope of work of the architect varies from job to job and is typically defined by the contract signed by the architect. For example, the scope of work could be as narrow as being hired by builders to simply produce a set of construction drawings that can be used by the builder to obtain a building permit. After that, the architect has no further involvement. At the other end of the spectrum, the architect is involved in reviewing and approving submittals of materials the builder or subcontractors want to use on the project, reviewing contractor applications for payment of invoices, and even reviewing work done by the general contractor/subcontractors in the field for compliance with the plans, manufacturer’s installation specifications, and details.

The Building Department of the municipality is responsible for protecting life and safety. They review the architectural and other construction drawings for compliance with building codes prior to issuing a building permit. They review things like the height of the building, square footage, intended occupancy, fire ratings, seismic requirements, and other considerations with an eye towards keeping the public safe. Once construction is under way, the building inspectors visit the site to check to see if the building is being built per the codes and approved plans. When construction defects are discovered and damage is found, many homeowners and condominium unit owners want to know why the building inspector and township are not responsible. While they may have some moral responsibility, the law of New Jersey gives them a qualified immunity from liability for negligence in doing building inspections. In the absence of fraud (ie, taking bribes), the building inspectors and the municipalities are immune from civil liability. This immunity was presumably granted by the legislature to prevent every municipality in New Jersey from being bankrupted by construction defect cases.

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On January 7, 2015, the Judicial Panel on Multidistrict Litigation (JPML) ordered that six putative class-action lawsuits stemming from Colorado, Illinois, Indiana, Iowa, North Carolina and Ohio will be venued and centralized in the U.S. District Court for the District of New Jersey. New Jersey was selected to handle this MDL litigation matter because the primary defendant/manufacturer of the outdoor decking material at issue, GAF Materials Corp., is headquartered in Wayne, NJ. The cases are consolidated before U.S. District Court Judge Jose Linares in Newark. The number of nationwide suits subject to the consolidation order is expected to at least double.

The claims at issue involve an outdoor decking product manufactured by GAF. One of the class representatives, Thomas McGovern, installed the subject decking at his vacation house in Mackinac Island, Michigan in 2009. The decking almost immediately began to warp and stain when exposed to the elements. The condition of the material was so bad that it had to be completely replaced two years later. The claims involve violations of applicable consumer protection laws, breach of warranty and unjust enrichment, and relate primarily to the defective product itself rather than improper installation.

GAF is represented by Quinn Emanuel in New York. Insofar as GAF has not filed a motion to dismiss any of the actions, it looks like these MDL cases are headed into full-blown litigation.

A New Jersey appellate court recently issued a reported opinion in Hill International v. Atlantic City Board of Education, addressing whether an affidavit of merit issued by an engineer, addressing the conduct of a defendant, architect, was sufficient in order to satisfy the requirements of the affidavit of merit statute.

At issue was whether the conduct of a licensed New Jersey architect, and his licensed architectural firm, was deficient in terms of his failure to properly perform contract administration and design services, provided in connection with construction of a school. The affidavit of merit was issued by a licensed engineer, who was not a licensed architect, although the two professions do have some overlap. The court addressed whether the affidavit of merit statute, which requires an affidavit from an “appropriate licensed person” should allow this type of deviation or be construed to require a supporting affidavit of merit from a “like-licensed” professional in all malpractice or negligence cases falling within the purview of the statute.

The court held that, to support a claim of malpractice or professional negligence, the affidavit must be issued by an affiant who is licensed within the same profession as the defendant. The court did however carve out exceptions where an affidavit from such a like-licensed expert was not required – in circumstances where the plaintiff’s claims do not involve the exercise of functions within the scope of the licensed professional’s role, or where the claims are confined to theories of vicarious liability or agency that do not assert or implicate deviations from the defendant’s professional standards of care.

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In a decision that has renewed the faith of condominium law practitioners in our state’s judicial system, the New Jersey Appellate Division recently issued a strongly worded opinion in Port Liberte II Condo. Ass’n v. New Liberty Residential Urban Renewal Co. et. al., 2014 N.J. Super. LEXIS 19 (App. Div. Jan. 21, 2014) (approved for publication on January 31, 2014), that has prevented a grave injustice and allowed unit owners to control their own fates by having the power to validate unauthorized decisions of the board.

In what has been exclaimed as a “big win” for condominium associations and unit owners, the Appellate Division has determined that a condominium board’s decision to file suit without taking a pre-litigation vote, required by the association’s bylaws, can be affirmed at a later time by the membership and cannot be challenged by the defendants. Designed to protect the financial interests of the unit owners, the bylaws cannot be used by defendant developers and contractors to suppress those very same interests. Non-homeowners, therefore, do not have standing to challenge unauthorized or procedurally defective decisions of the board to start suit.

Faced with widespread construction defects in the common elements of its 225-unit community with a price tag in excess of thirty million dollars for repairs, the Port Liberte II Condominium Association filed suit in 2008 against those responsible, the Developer and the contractors that built the development. Several years into the law suit, the defendants sought dismissal of the entire action because the Association had not obtained a community vote to approve the filing of the suit, as required by a provision of the bylaws drafted by the Developer. To rectify that oversight, the Association held two separate votes to ratify the original filing of the suit, the first in October of 2009, which was approved by the community 72 votes to 3, and a second in October of 2011, which was approved by a vote of 65 to 1. Armed with these two examples of overwhelming support in the community for the lawsuit, the Association opposed the defendants’ motions to dismiss the case arguing that the defendants, as outsiders who owned no units in the community, had no standing to enforce the bylaws, and, even if they had such standing, the original filing of the suit was overwhelmingly ratified by the unit owners.

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Every day condominium associations battle delinquencies and employ creative strategies for collecting unpaid assessments. Sometimes ambitious collection efforts are successful – sometimes not. One aggressive strategy employed by associations is the appointment of a rent receivership for a vacated or abandoned unit owned by a delinquent owner. If successful, a receivership would entitle the association to collect rent for a unit it technically does not own and apply the monies received towards the owed arrearage. While the concept sounds good in theory, it is actually quite difficult to accomplish in practice given the likely upside down mortgage on the property, the inevitable foreclosure proceedings by the bank, and the fact that abandoned units are not occupied by paying tenants.

All those dissuading factors, however, did not stop one association from trying. Faced with over $30,000 of unpaid maintenance dues for two abandoned units, Woodlake at King’s Grant Condominium Association, made an application to the Chancery Court for an appointment of a rent receiver. The Chancery Judge denied the Association’s request finding that the “extraordinary remedy of appointing a rent receiver” was not appropriate under those facts and circumstances. The Association appealed and the Appellate Division issued an unpublished decision on April 1, 2014 affirming the judge’s denial of the Association’s application. See Woodlake at King’s Grant Condo. Ass’n v. Coudriet, 2014 N.J. Super. Unpub. LEXIS 714 (App. Div. Unpub. 2014).

Despite recognizing that the Association was seeking the appointment of a receiver so that it could rent out defendants’ vacant units and recoup some of the assessment monies owed by the defendants, the Appellate Court did not find legal support or plaintiff’s arguments persuasive in favor of forcing the defendants to rent their units or for allowing the Association to rent those units to new tenants. Even though the Association’s assessment liens would remain unpaid after a foreclosure sale because the mortgage liens on the units exceeded their fair market value thereby leaving the Association with no remedy, the Appellate Division found no authority in the bylaws or in the Condominium Act for providing the appointment of a rent receiver.

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In early April, a Bergen County judge dismissed a construction defect complaint filed by a mammoth 40-story condominium complex known as the Palisades, located along the Hudson River in Fort Lee, based on the statute of limitations. While dismissal for filing suit outside the statute of limitations is nothing new or surprising, the way in which the judge reached that conclusion and applied the “law” is. According to Judge Robert C. Wilson, the six-year statute of limitations begins to run upon “substantial completion,” is not subject to the discovery rule, and is not tolled until the association is created and subsequently controlled by the homeowners. Not only does this decision render the ten-year statute of repose meaningless, it unduly prejudices the rights of condominium associations whose legislatively granted six-year window to file suit can seemingly be judicially dwindled down to two years or one year or less.
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Until now, owners of single-family homes were left to their own devices and resources in seeking redress for construction defects. Class suits were thought to be unavailable to homeowners despite their homes having been built by the same builder and suffering from the same general defects. The differences in subcontractors used, methods of construction, location of defects, time built and nature of resulting damages defeated class certification and deterred law firms from bringing class action lawsuits alleging construction defects. The economics of bringing an individual construction defect suit weighed heavily against litigation and, as a result, homeowners ended up either living with the defects or paying for repairs out of pocket.

Fortunately for homeowners, a recent decision from the Appellate Division captioned D’Andrea v. Hovnanian, 2013 N.J. Super. Unpub. LEXIS 1484 (App. Div. June 18, 2013) has changed that landscape. According to the Appellate Division, the four prerequisites for bringing a class action lawsuit – numerosity, commonality, typicality, and adequate representation – were met by a class of plaintiffs who sued developer K. Hovnanian (“Hovnanian”) for fire safety hazards in the HVAC system installed in their homes.

Arguing against class certification, Hovnanian contended that the individualized nature of home construction made such causes of action unsuitable for class certification. Hovnanian pointed out, and Plaintiffs agreed, that there was no single deviation common to each class member’s home. Nevertheless, despite the significant differences among the construction defects, there remained a “strong commonality in the nature of the claimed defect – fire safety hazards in HVAC return systems.” Seeing the forest instead of the trees, the court focused on whether construction of the HVAC cavities met the applicable code rather than on the differences in materials and construction methods used.

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In late 1998 Monroe Station Associates started construction on the Belmont, a seven-story, thirty-four unit condominium building in Hoboken, New Jersey. Monroe Station served as the sponsor, developer, and general contractor of the Belmont. Prior to completing construction, Monroe Station filed a Public Offering Statement (“POS”), which stated that there were no known defects in the common elements of the Belmont building that a prospective purchaser could not determine by a reasonable inspection. Attached to the POS were certain marketing materials, which provided that the potential buyers would be getting a “Proven Developer and Construction Management Team which has overseen the building and renovation of over 400 Single Family & Condominium Homes, and over 1,000,000 Sq. Ft. of Office/Commercial/Retail Development.”

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