Articles Posted in Litigating Claims

You hire an architect to prepare plans for the construction of a new home and a developer to execute those plans and physically construct the home. The plans require the testing of the underlying soil to confirm that the bearing capacity of the soil is adequate to support the weight of the structure. The builder, despite being contractually obligated to build the home in accordance with the plans and specifications, does not test the soil.

As a result, after the structure is erected, you notice substantial cracking and differential settlement throughout the house. The builder assures you this is just “a normal part of the settling process.” You later find out that a substantial portion of the house was constructed on soil with a bearing capacity that is considerably less than what is required, and the house is slowly sliding down a hill and uninhabitable. You bring suit against the developer for breach of contract. Can you also claim a violation of the Consumer Fraud Act and seek triple damages and attorneys’ fees?

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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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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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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.

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.

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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The doctrine of equitable estoppel prevents a defendant from asserting the statute of limitations as a defense when the defendant has engaged in conduct that was calculated to mislead the plaintiff into believing that it was unnecessary to file suit. Thus, our courts have recognized that equitable estoppel may be appropriate where a defendant has lulled plaintiff into a false sense of security by representing that a claim will be amicably settled or resolved without the necessity for litigation. Such is the case when an association is engaged in settlement discussions with a developer and the developer promises to repair all identified defects and water intrusion issues in the community.

The important caveat regarding equitable tolling is that if, after the cessation of any basis for continued reliance by a plaintiff on the conduct of a defendant, there remains a reasonable time under the applicable limitations period to commence a cause of action, the action will be barred if not filed within this remaining time. Thus, while the discovery rule defers the accrual of a cause of action and provides a full six (6) years after discovery of injury and fault to file suit, equitable tolling delays the bar of the statute of limitations once a cause of action has accrued and may provide less than the full six years to file a claim if plaintiff has “a reasonable time” after the basis for equitable tolling has ceased to file under the original limitations period. What constitutes “reasonable” is not well delineated and will likely turn on the specific facts of each case.

In New Jersey, construction defect claims are subject to a six-year statute of limitations, N.J.S.A. 2A:14-1, which is subject to the discovery rule, and a separate ten-year statute of absolute repose, N.J.S.A. 2A:14-1.1, after which potential causes of action no longer exist.

Under New Jersey’s discovery rule, the accrual of a cause of action is deferred until the injured person knows or should know that he has sustained an injury and knows or should know that an injury of which he is aware is attributable to the fault of another person. The discovery rule is an equitable principle by which an accrual of a cause of action is delayed until the injured party discovers, or by the exercise of reasonable diligence and intelligence, should have discovered, that he may have a basis for an actionable claim. Once the injured party knows that it has been injured and that the injury is the fault of another, it has the requisite knowledge for the period of limitations to commence running.

Put simply, for a cause of action to accrue, the injured plaintiff must have knowledge of both injury and fault. Lynch v. Rubacky, 85 N.J. 65, 70 (1981) (“the discovery rule centers upon an injured party’s knowledge concerning the origin and existence of his injuries as related to the conduct of another person”). This rule applies to complex construction defect cases involving hidden construction and design defects.

Among the relevant factors in analyzing whether the discovery rule applies are the nature of the injury and the difficulties inherent in discovering it. Vispisiano v. Ashland Chem. Co., 107 N.J. 416, 428 (1987). For example, in a toxic tort case, such as that presented in Vispisiano, diagnosing a plaintiff’s injury is but the first step in establishing a chain of causation. Id. at 429. The plaintiff’s suspicion that he had been poisoned, after comparing his symptoms to those of a co-worker, was not sufficient to accrue a cause of action, particularly in the face of his doctors’ repeatedly rejecting plaintiff’s concerns that he had been poisoned while working at a chemical plant. Id. at 436.

Applying the foregoing to the condominium construction defect setting gives rise to the argument that a plaintiff association’s cause of action accrues when it receives an engineer’s report (either during transition or afterwards) that first apprises the association of the defects afflicting its buildings and the suspected causes of those defects. However, it may be the case that the requisite knowledge is obtained at an earlier date when unit owner board members learn of defects.

Statutes of repose and limitations establish different types of deadlines for the assertion of claims. Statutes of repose begin to run at an identifiable time or event and allow a claim to be filed for a specific amount of time after that event has occurred. After the expiration of the repose period, no claim will be deemed to have accrued and none may be filed. A statute of repose does not function to bar an existing cause of action; rather, it prevents what might otherwise be a cause of action from ever arising. Statutes of limitations, on the other hand, commence at the time a claim accrues and run for a specified amount of time. After a claim accrues, the statute of limitations begins to run and an action may be filed until the end of the limitations period or the end of the repose period, whichever comes first.

New Jersey follows the discovery rule, which tolls the running of the statute of limitations until the time when plaintiff has or reasonable should have knowledge of injury and fault. One fundamental difference between the statute of limitations and repose is that the statute of limitations may be tolled, whereas the statute of repose cannot. In New Jersey, the statute of repose period is ten (10) years from the date of substantial completion and the statute of limitations period is six (6) years from the date of accrual of a cause of action.

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