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Gene Markin, member of Stark & Stark’s Construction Litigation Group, authored the article, Construction Defect Plaintiffs: Be Aware of the Statute of Repose, for the March 19, 2012 edition of the New Jersey Law Journal.

The article discusses the fact that in New Jersey, litigations need to be aware of the “statue of repose” in addition to the statue of limitations. Mr. Markin states that statute of repose issues will most commonly arise in the area of construction defect litigation, when a lawsuit is filed more than 10 years after the construction of a building.

You can read the full article online here. (PDF)

Gene Markin, member of Stark & Stark’s Construction Litigation Group, authored the article, Buyer Beware of Defects in New Construction, for the January 30, 2012 edition of the New Jersey Law Journal. The article discusses why the remedy under the homeowner warranty program, may not be a remedy at all.

In the article, Mr. Markin states, “Since its inception, the New Jersey Home Warranty and Builders’ Registration Act, N.J.S.A. 46:3B-1 to -20, has proven to be more of a trap for new homeowners than the safety net it was purported to be. The purpose of the act is to establish a program requir¬ing that newly constructed homes con¬form to certain construction and quality standards, as well as to provide buyers of new homes with insurance-backed warranty protection in the event such standards are not met. While the intent of the act is to provide homeowners with a prompt, convenient and cost-saving means of resolving disputes con¬cerning construction defects, in reality, its effect has been, in many cases, to strip homeowners of any meaningful means of recovery for discovered con¬struction defects.”

An action for trespass arises upon the unauthorized entry onto another’s property, real or personal. A trespass on property, whether real or personal, is actionable, irrespective of any appreciable injury. Under a trespass theory, a plaintiff may “assert a claim for whatever damages the facts may lawfully warrant.” Thus, a plaintiff may claim damages from the loss in value to the land trespassed upon, as well as consequential damages such as property taxes and loss of profits.

While a municipality enjoys immunity for its exercise of discretion and judgment in the development of a sewer and drainage plan, such immunity does not protect it from liability for the creation of a nuisance or actual trespass.

An action for nuisance may be brought against a public entity unhampered by the TCA. Private nuisance is but one possible theory for recovery of damages caused by the invasion of one’s interest in the private use and enjoyment of land. That interest may be invaded by more than one type of conduct, i.e., the conduct may be intentional, it may be unintentional but caused by negligent or reckless conduct, or it may result from an abnormally dangerous activity for which there is strict liability. One is subject to liability for private nuisance if the invasion is either:
(a) intentional and unreasonable, or
(b) unintentional and otherwise actionable under the rules controlling liability for negligent or reckless conduct, or for abnormally dangerous conditions or activities.

[Restatement (Second) of Torts, § 822 (1979).]

The conduct necessary to make the actor liable for a private nuisance may consist of an act or a failure to act under circumstances in which the actor is under a duty to take positive action to prevent or abate an interference. Restatement (Second) of Torts, § 824 (1979). An invasion is intentional if the actor purposely causes it or knows that the invasion is substantially certain to result from his conduct. An intentional invasion of another’s use is unreasonable if:
(a) the gravity of the harm outweighs the utility of the actor’s conduct, or
(b) the harm caused by the conduct is serious and the financial burden of compensating for this and similar harm to others would not make the continuation of the conduct not feasible.

[Restatement (Second) of Torts, § 826.].

Water discharge from a broken storm drain pipe is most likely an actionable nuisance. See, e.g., City of Oxford v. Spears, 228 Miss. 433 (1956) (There is no question that an invasion of one’s interest in the use of downstream waters may constitute a nuisance); Sterling Iron and Zinc Co. v. Sparks Manufacturing Co., 55 N.J.Eq. 824 (E. & A. 1896) (New Jersey long ago recognized that the pollution of a watercourse may constitute an actionable nuisance); Bengivenga v. Plainfield, 128 N.J.L. 418 (E. & A. 1942) (municipalities were held liable for nuisance resulting in water pollution, although the legal analysis upon which liability was based, active wrongdoing, is now outdated); Borough of Westville v. Whitney Home Builders, 40 N.J. Super. 62, 68 (App. Div. 1956) (Our courts have held that the discharge of treated sewage effluent into a running stream is not necessarily an unreasonable riparian use in today’s civilization, but that it may be unreasonable if the harm from doing so outweighs the benefit).

Presented with the question of whether a public entity can be liable for a nuisance as recognized by the TCA, our Supreme Court concluded that it is for two reasons: First, sections of the Tort Claims Act may be interpreted as making public entities liable for nuisance under the standards provided by the Act, and second, in light of the history of municipal liability in this area, the Supreme Court perceived no intent to eliminate this liability.

With respect to the statutory recognition and continuation of the nuisance cause of action, the two sections of the act implicated are N.J.S.A. 59:4-2 and N.J.S.A. 59:2-2. The former creates liability for injury caused by the dangerous condition of a public entity’s property. Nothing in this section has been construed to impose liability upon a public entity for a dangerous condition of its public property if the action the entity took to protect against the condition or the failure to take such action was not palpably unreasonable. Thus, this section imposes liability upon a municipality in its status as property owner for nuisance where its actions can be found to be “palpably unreasonable.”

In sum, an action in nuisance may be maintained against a municipality under and subject to the standards of the Tort Claims Act, so long as Plaintiff shows that the action taken or failure to act by the public entity was palpably unreasonable. See, e.g., Lyons v. Twp. of Wayne, 185 N.J. 426, 434 (2005) (“When analyzing a nuisance . . . wrongful conduct is not limited to the creation of the condition. Rather, a failure to physically remove or legally abate that condition, resulting in the physical invasion of another’s property, also constitutes wrongful conduct.”); Gould & Eberhardt, Inc. v. City of Newark, 6 N.J. 240, 243 (1951) (“[A] municipality does not have the right to collect surface water and discharge it upon private property in greater quantity and with greater force than would occur from natural flow, so as to cause substantial injury.”); Sheppard v. Twp. of Frankford, 261 N.J. Super. 5, 8 (App. Div. 1992) (noting that injunctive relief was appropriate because unreasonable discharge of storm waters by township onto plaintiffs’ property created continuing nuisance); Black v. Borough of Atlantic Highlands, 263 N.J. Super. 445, 453 (App. Div. 1993) (allowing nuisance cause of action for failing to prune crab apple trees creating dangerous condition on adjacent private property).

In Russo Farms v. Vineland Bd. of Educ., 144 N.J. 84 (N.J. 1996), the Plaintiffs brought a lawsuit against, inter alia, the Vineland Board of Education (the Board) and the City of Vineland (the City) for damages to their crops and farmland from flooding that resulted from the improper siting and construction of a public school located across the street from their property and by an inadequate drainage system on a bordering street. Plaintiffs claimed that the Board and City were liable under a nuisance theory because the Board and City’s use of their property invaded plaintiffs’ use and enjoyment of their land. The Court noted that invasion was a physical invasion, which ordinarily sounds in trespass, but “the flooding of the plaintiff’s land, which is a trespass, is also a nuisance if it is repeated or of long duration.” See also Hennessy v. Carmony, 50 N.J. Eq. 616, 618 (Ch. 1892) (throwing water on another’s property once constitutes a trespass, “to continue to do so constitutes a nuisance”).

When a court finds that a continuing nuisance has been committed, it implicitly holds that the defendant is committing a new tort, including a new breach of duty, each day, triggering a new statute of limitations. That new tort is an “alleged present failure” to remove the nuisance, and since this failure occurs each day that the defendant does not act, the defendant’s alleged tortious inaction constitutes a continuous nuisance for which a cause of action accrues anew each day. See also Sheppard v. Township of Frankford, 261 N.J. Super. 5, 8-9 (App. Div. 1992) (noting that disposal of water runoff onto plaintiff’s property created continuing nuisance).

It is pretty well settled that periodic flooding due to defective construction of a drainage system constitutes a continuing tort. The Russo Farms court held that a nuisance is continuing when it is the result of a condition that can be physically removed or legally abated. In such a case, it is realistic to impute a continuing duty to the defendant to remove the nuisance, and to conclude that each new injury includes all elements of a nuisance, including a new breach of duty. On the other hand, when the nuisance cannot physically be removed, it is unfair to impose a continuing, impossible to fulfill duty to remove the nuisance.

Accordingly, the continued flooding of a landowner’s property would be considered an actionable continuous nuisance. See Russo Farms, supra, 144 N.J. at, 97-105 (holding that TCA permits nuisance and negligence causes of action for damages caused on private property by dangerous condition on public entity’s property created by school drainage and municipal storm-water drainage system); Medford Lakes, supra, 90 N.J. at 591-96 (allowing action for nuisance for damage to lake caused by discharge from municipally owned and operated sewage treatment plant); Saldana v. DiMedio, 275 N.J. Super. 488, 499 (App. Div. 1994) (allowing cause of action against municipality for dangerous condition on its property for fire that spread from city-owned abandoned building to privately-owned property); Sheppard v. Township of Frankford, 261 N.J. Super. 5 (App. Div. 1992) (in a nuisance case that involved a public entity’s disposal of storm-water runoff onto private property the court found a continuous nuisance existed where the storm-water drainage system at issue “enhanced, concentrated, and sped up the flow of the storm water into the drainage ditch,” thereby causing flood damage on the plaintiff’s property).

The immunity principle espoused by the Barney’s Furniture court (concluding that the city could not be held liable in damages for floods resulting from a gradually increasing functional incapacity of the sewer system) is codified as the planning and design immunity provision of the TCA. See N.J.S.A. 59:4-6. The Act’s plan or design immunity is granted because such decisions are “an example of the type of highly discretionary governmental activity which the courts have recognized should not be subject to the threat of tort liability.” N.J.S.A. 59:4-6 cmt. Thus, under Barney’s Furniture, as well as under the Tort Claims Act, a public entity may establish plan or design immunity for its original construction of a drainage system. Once it does, “no subsequent event or change of condition shall render a public entity liable on the theory that the existing plan or design of public property constitutes a dangerous condition.” N.J.S.A. 59:4-6 cmt.

Although plan or design immunity does not depend upon any showing of the reasonableness of the design, nor can it be lost by changed circumstances, N.J.S.A. 59:4-6 cmt, it does not suffice for the public entity to show that works were constructed under a permit. For, although liability cannot be based on the inadequacy of the design or plan, immunity from liability for an independent affirmative act (such as the claimed discharge of high amounts of phosphates and nutrients) is afforded in the first instance only for an approved feature of the plan or design. Therefore, a fair reading of the TCA’s planning and design immunity provision compels the conclusion that the prerequisite fact which must be proved in order for the public entity’s burden of proof to be deemed to have been successfully carried is that the specific design or plan detail alleged to constitute the dangerous condition was the subject of prior governmental approval or in conformity with prior approved standards. Moreover, it is important to note that the public entity bears both the burden of pleading the affirmative defense and the burden of proof. Ibid.

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Public entities, however, are not liable for discretionary activities. The section that confers immunity based upon discretionary activities reads as follows:

(a) A public entity is not liable for an injury resulting from the exercise of judgment or discretion vested in the entity;

(b) A public entity is not liable for legislative or judicial action or inaction, or administrative action or inaction of a legislative or judicial nature;

(c) A public entity is not liable for the exercise of discretion in determining whether to seek or whether to provide the resources necessary for the purchase of equipment, the construction or maintenance of facilities, the hiring of personnel and, in general, the provision of adequate governmental services;

(d) A public entity is not liable for the exercise of discretion when, in the face of competing demands, it determines whether or how to utilize or apply existing resources, including those allocated for equipment, facilities and personnel unless a court concludes that the determination of the public entity was palpably unreasonable. Nothing in this section shall exonerate a public entity for negligence arising out of acts or omissions of its employees in carrying out their ministerial functions.

[N.J.S.A. 59:2-3.]

Subsection (a) concerns the “exercise of judgment or discretion” in making basic policy — the type made at the planning, rather than the operational level of decision-making. Moreover, immunity is contingent upon proof that discretion was actually exercised at that level by an official who, faced with alternative approaches, weighed the competing policy considerations and made a conscious choice.

In Birchwood Lakes Colony Club v. Medford Lakes, 90 N.J. 582, 601 (N.J. 1982) our Supreme Court acknowledged the validity of a pre-Tort Claims Act case, Barney’s Furniture Warehouse v. Newark, 62 N.J. 456, 467-68 (1973), which held that although a municipality is not liable for the gradually increasing functional incapacity of its sewer system, it remains liable for negligent operation or repairs and would be liable if in actual operation the system expels artificially collected sewage upon a claimant’s property (Barney’s Warehouse, supra, involved claims of damage by property owners whose premises were periodically flooded by water backup following rainfall. The Court concluded that “by far, the greater portion of the floodwaters . . . consists of either precipitation or back-flow of surface water. . . .” Id. at 462. The Court held there was no affirmative municipal duty to keep its storm water system abreast of municipal growth and no showing that “collected waters” were cast upon plaintiffs’ lands. Id. at 468. The court distinguished from the matter before it such cases as those of private damage resulting from lack of repair or from the connection of additional laterals to a sewer whose existing incapacity was already demonstrated, or from the casting into a sewer of “sewage beyond its capacity to conduct to the common outlet so that it must empty itself upon the private property” and the case of a common sewer outlet emptying directly on private property. It was said that in all of such instances the public body is generally held responsible.).

Accordingly, the Medford Lakes court held that a public entity will be immune from liability for claims of damages from public sewer discharges when the amount of discharge is incorporated into the plan and design “approved in advance” by the body exercising “discretionary authority to give such approval,” N.J.S.A. 59:4-6, so long as the works are thereafter operated with reasonable care and in accordance with the permit requirements.

As the Barney’s Furniture court acknowledged, the duties of the municipal authorities in adopting a general plan of drainage and in determining when and where sewers shall be built, of what size and at what level, are of a quasi-judicial nature, involving the exercise of deliberate judgment and discretion, and depending upon considerations affecting the public health and general convenience throughout an extended territory; and the exercise of such judgment and discretion in the selection and adoption of the general plan or system of drainage is not subject to revision by a court or jury in a private action for not sufficiently draining a particular lot of land. However, the construction and repair of sewers, according to the general plan so adopted, are simply ministerial duties, and for any negligence in so constructing a sewer or keeping it in repair, the municipality which has constructed and owns the sewer may be sued by a person whose property is thereby injured.

The view that liability does not attach for defects in the general plan of a municipal sewerage system is generally held. A few jurisdictions, however, have followed a minority rule to the effect that if a sewer system as established proves inadequate “to keep pace with the increasing demands upon the resources of the artificial channels it has established” it must be changed to accommodate such demands at peril of liability. See, e.g., City of Louisville v. Cope, 296 Ky. 207 (Ct. App. 1943); City of Macon v. Cannon, 89 Ga. App. 484 (Ct. App. 1954); City of Holdenville v. Griggs, 411 P.2d 521 (Okl. Sup. Ct. 1966). More frequently, however, it is held that if a sewer is adequate when constructed the municipality is not liable because of subsequent inadequacy occasioned by the growth of the municipality and the increased demands made upon the sewer. This position is qualified to the extent that liability will follow if in actual operation the system expels artificially collected sewage, whether sanitary or storm or both, into plaintiff’s home or onto his land.

Thus, flooding of a plaintiff’s property as a result of waters cast upon it out of sewer lines would be a basis for imposing liability on the public entity in control of the sewer lines through application of the doctrine of the “collected water” cases cited above. Moreover, liability attaches when damage results because of a public entity’s failure to remedy a condition of disrepair.

Accordingly, public entities remain liable for negligent operation or construction. In our State, the operation of a sewer system by a municipality is held to be the exercise of a proprietary function, and liability is determined under ordinary principles of negligence, without regard to the municipal character of the tortfeasor.

When a municipality constructs and operates a sewer system it becomes its duty to keep it in repair and free from conditions that will cause damage to private property. Its duty to keep its sewers in repair is not performed by waiting to be notified by citizens that they are out of repair, and repairing them only when the attention of municipal officials is called to the damage they have occasioned by having become dilapidated and defective. Its duty involves the exercise of a reasonable degree of watchfulness in ascertaining their condition from time to time, and preventing them from becoming dilapidated and defective. Where dilapidation and defects are the ordinary result of the use of the sewer which ought to be anticipated and could be guarded against by an occasional examination by tests or otherwise, the failure to make such examinations is a neglect of duty which renders the municipality liable for damage proximately caused thereby.

The rule of damages applicable to damage sustained to real property of a plaintiff allows recovery based upon the diminution in value of said property caused by the defendant public entity’s negligence. Additionally, evidence of the reasonable cost of repairs necessary to restore such property to its former condition may be considered in determining such loss.

The New Jersey Tort Claims Act (the “TCA” or the “Act”) provides that “a public entity is not liable for an injury” caused by an act or omission “[e]xcept as otherwise provided by this act.” N.J.S.A. 59:2-1a. Under the TCA, immunity is the rule and liability is the exception. The TCA defines public entities to include counties and municipalities, and therefore townships also fall within the scope of the TCA. N.J.S.A. 59:1-3.

One relevant exception to the general rule of immunity covers dangerous conditions on public property. N.J.S.A. 59:4-2. That section provides:

A public entity is liable for injury caused by a condition of its property if the plaintiff establishes that the property was in dangerous condition at the time of the injury, that the injury was proximately caused by the dangerous condition, that the dangerous condition created a reasonably foreseeable risk of the kind of injury which was incurred, and that either:

(a) a negligent or wrongful act or omission of an employee of the public entity within the scope of his employment created the dangerous condition; or
(b) a public entity had actual or constructive notice of the dangerous condition under section 59:4-3 a sufficient time prior to the injury to have taken measures to protect against the dangerous condition.

Nothing in this section shall be construed to impose liability upon a public entity for a dangerous condition of its public property if the action the entity took to protect against the condition or the failure to take such action was not palpably unreasonable.

[N.J.S.A. 59:4-2.]

Chapter 4 of the Act, specifically N.J.S.A. 59:4-2, imposes liability on a public entity for injury caused by a condition of its property if the plaintiff establishes that the property was in dangerous condition at the time of the injury, that the injury was proximately caused by the dangerous condition, and that the dangerous condition created a reasonably foreseeable risk of the kind of injury incurred. The plaintiff must also establish that the public entity was responsible either through its employees for creating the dangerous condition or had actual or constructive notice of the condition sufficiently before the injury to have taken measures to protect against the dangerous condition, provided that the entity will not be liable if the action taken to protect against the condition was not “palpably unreasonable.” N.J.S.A. 59:4-1(a) defines “dangerous condition” as “a condition of property that creates a substantial risk of injury when such property is used with due care in a manner in which it is reasonably foreseeable that it will be used.”

The TCA defines “public property” as property that is “owned or controlled by the public entity.” N.J.S.A. 59:4-1c. However, liability is not limited to an event occurring on public property. In fact, our Supreme Court has concluded that public entities may be liable for creating a dangerous condition on private property that is under the “control” of the public entities.

Nevertheless, whether a dangerous condition exists is ultimately a question for the jury. In order for plaintiffs to be successful at trial, they must not only prove that public property created a dangerous condition, but that the condition created a foreseeable risk of the kind of injury that occurred, that the condition proximately caused the injury and that the action the public entities took to protect against the dangerous condition or the failure to take such action was palpably unreasonable. The term “palpably unreasonable” connotes “behavior that is patently unacceptable under any given circumstance.” A dangerous condition under the TCA relates to the physical condition of the property itself and not to activities on the property. See Roe ex rel. M.J. v. New Jersey Transit Rail Operations, Inc., 317 N.J. Super. 72 (App. Div. 1998), certif. denied, 160 N.J. 89 (1999) (held that a permanently bolted-open gate on New Jersey Transit’s property constituted a dangerous condition under N.J.S.A. 59:4-2 because it invited the public to enter a high-crime area).

The law in New Jersey is such that a public entity is not liable for an injury caused by the issuance, denial, suspension or revocation of, or by the failure or refusal to issue, deny, suspend or revoke, any permit, license, certificate, approval, order, or similar authorization where the public entity or public employee is authorized by law to determine whether or not such authorization should be issued, denied, suspended or revoked.

Pursuant to N.J.S.A. 59:2-3, “(a) a public entity is not liable for an injury resulting from the exercise of judgment or discretion vested in the entity; (b) a public entity is not liable for legislative or judicial action or inaction or administrative action or inaction of a legislative or judicial nature.” Determining whether governmental action is discretionary for the purposes of the Tort Claims Act generally depends upon whether the decision is a high level policy decision. Generally high level policy decisions classified as discretionary acts involve planning, and are distinct from ministerial acts, which pertain merely to operations and which are not immunized.

A ministerial act has been defined as “one which a person performs in a given state of facts in a prescribed manner in obedience to the mandate of legal authority, without regard to or the exercise of his own judgment upon the propriety of the act being done.” Thus, it has been determined that decisions of planning boards and boards of health are discretionary because planning boards and boards of health do not simply perform in a given manner without the exercise of their own judgment, their actions cannot be deemed ministerial. While it is true that once certain facts have been established, a planning board is mandated to act in a certain way, however, the board uses discretion in weighing the credibility of witnesses and evidence presented when making findings of fact. Therefore, the decisions of planning boards and boards of health, to issue permits or authorize subdivisions, for example, are the types that are afforded immunity. See N.J.S.A. 59:2-5.

This immunity is necessitated by the almost unlimited exposure to which public entities would otherwise be subject if they were liable for the numerous occasions on which they issue, deny or suspend permits and licenses. In addition, most actions of this type by a public entity can be challenged through an existing administrative or judicial review process.

As the comment to N.J.S.A. 59:2-5 describes, the TCA has been interpreted to grant immunity to all phases of the licensing function, whether or not the act was classified as discretionary or ministerial. See Malloy v. State, 76 N.J. 515 (1978). Therefore, any allegations that a planning board negligently granted site plan approval or a licensing board wrongly issued a permit, would more likely than not fall within the purview of the immunizing provisions of the Act.

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Whether you are a general contractor, a sub-contractor, or a supplier, those in the construction industry are are uniquely aware of the difficulty of coming by work in these harsh economic times. You are also equally aware that even though work may be available, receiving payment from the owner, the general contractor, or the sub-contractor can be a difficult task. The purpose of this blog is to discuss the best way to ensure that not only does the project proceed properly, but also, that you receive payment for your work and/or materials.

If you are in the position of a general contractor, the most important thing for you to do is to not allow the owner to get too far ahead of you when it comes to payment. Obviously, it is typical that invoices or payment applications require payment within 30 days. A good suggestion, however, would be to request an amendment for the contract to require payment within two weeks. As a general contractor, although a project may be appearing to proceed smoothly, it is suggested that you closely monitor the timing of payment from the project owner. Although you may not wish to disturb the project owner, as long as you are cordial they will understand your concerns about payment.

You can manage this by threatening to stop work if the payments are not timely rendered, as well as memorializing all issues with the timing of payment. As you should be aware, you can only file Construction Liens within 90 days from the last date you provided materials or services. As such, you should always remember that should the project stall or should the project owner claim financial issues that you should timely file the Lien. Although the goal is to complete the project, your principal goal is to get paid for the work that you have completed to date.

If you assume the role of a sub-contractor or supplier, it is important that you not allow the general contractor get too far ahead of you, just as a general contractor cannot allow an owner to get too far ahead of him. Although you may not want to disturb the balance between you and the general contractor, it is suggested that if payment issues arise that you document those issues with a letter to the general contractor, which you can provide a copy to the project owner. This way, if the project owner is unaware of payment issues, Joint Check Agreements can be worked out to ensure payment. Once again, you must be aware of the Construction Lien laws and your right to file a Lien. Your right to file a Lien is dependent upon whether or not you are a first tier sub-contractor or supplier or a second tier. This designation is dictated by the Lien statute. As a practical matter, like a general contractor, one of the best approaches to ensure payment is to not allow the general contractor to get too far ahead of you. Although the goal is to complete the project, like a general contractor your goal is to ensure you get paid for the work you performed.

Hopefully, this short little guide will provide you some guidance in ensuring that you are paid for the work you perform in these difficult economic times, as increasingly project owners and general contractors are finding financing issues while in the midst of a project due to nervous banks or other financial institutions. If you have questions regarding the above blog post, feel free to contact me in my firm’s Lawrenceville, New Jersey office to discuss this matter in more detail.

On Monday, November 15th, 2010, the New Jersey Supreme Court issued its highly anticipated decision in the controversial case of Dean v. Barrett Homes, Inc., 406 N.J. Super. 453 (App. Div. 2009), cert. granted, 200 N.J. 207, 976 (2009). The contested issue in Dean was whether the economic loss doctrine, a judicial construct which bars recovery in tort for damage a product causes only to itself, applied to bar a homeowner’s tort claim for a defective exterior finishing system installed on their home during construction. The salient question the Supreme Court had to answer was whether a home built with the exterior siding product, in this case manufactured by defendant Sto Corporation (“Sto”), was considered the “product itself” for purposes of delineating Sto’s tort liability. If the exterior siding product was considered to be fully integrated into the home, then home purchasers would be precluded from pursuing products liability relief against manufacturers of allegedly defective products permanently affixed to the outside of the home, for damage those products caused to the home. In a triumph for home purchasers, innocent builders and developers, the Supreme Court held that Sto’s exterior finishing product, Exterior Insulation and Finish System (“EIFS”), was a separate product from, and not fully integrated into, plaintiffs’ home. A cause of action, therefore, exists against Sto to the extent that its EIFS product caused damage to the house or its structural components.

The New Jersey Products Liability Act (the “Act”) creates a tort cause of action against a manufacturer or seller of a defective product. N.J.S.A. 2A:58C-2. However, the Act specifically limits recovery to the harm done to people or property, other than the product itself. N.J.S.A. 2A:58C-1b(2). If a defective product causes damage exclusively to itself, the loss is said to be strictly “economic” and the claimant does not have a cause of action in tort. Thus, the judicial construct known as the “economic loss rule” was embodied by the legislature in the Act and serves to bar tort remedies in strict liability or negligence when the only claim is for damage to the product itself. See Spring Motors Distribs., Inc. v. Ford Motor Co., 98 N.J. 555 (1985).

In Dean, the plaintiffs, Robert, Jennifer, and Mary Sue Dean, purchased a home in 2002 from its original owners. The home had been built with EIFS. Prior to closing, plaintiffs hired a home inspector to conduct an investigation. The inspection report raised some concerns regarding the EIFS siding. Later, plaintiffs learned that their insurer would not transfer their existing homeowner’s policy to the new property, allegedly because of the EIFS. Nonetheless, plaintiffs purchased the home and moved in. About one year after moving in, they started noticing black lines on the exterior of their home and consequently hired an industrial hygienist to inspect their house. The industrial hygienist found toxic mold that he attributed to leaks from the EIFS. Plaintiffs eventually had all of the EIFS cladding removed and replaced. In May 2004, plaintiffs filed suit against multiple defendants including Sto Corp., the manufacturer of the EIFS. As the case progressed, plaintiffs settled with all of the defendants except Sto. Sto moved for summary judgment, which the Court granted, reasoning that the EIFS was so integrated into the home that the home itself was the product and any damage to its structural elements was strictly an economic loss. In other words, the Court used the integrated product doctrine to conclude that the attachment of the EIFS to the home made the home itself the “product” at issue and then relied on the economic loss rule to bar plaintiffs’ tort claim against Sto because their cause of action only alleged damage to their house, the “product”. On appeal, the Appellate Division affirmed the trial court’s grant of summary judgment. Appeal to the New Jersey Supreme Court followed.

The Supreme Court granted certification to decide first, whether it will adopt the integrated product doctrine and, if so, whether the EIFS was sufficiently integrated into plaintiffs’ home that the economic loss rule bars any recovery for damages to the EIFS or to the home. The Court reasoned that “a product that is merely attached to or included as part of the structure is not necessarily considered to be an integrated part thereof”, particularly in the case of homes. Noting that California courts have declined to apply the integrated product doctrine to products used in building houses, the Court concluded that the affixed EIFS did not become a fundamental part of the house structure itself, and at all times was distinct from the house. Holding that the EIFS was a separate and distinct product from the home itself, the Court concluded that the economic loss rule precluded plaintiffs from recovering for damage to the EIFS itself i.e. cost of replacement, however, they were not precluded from recovering for damage “the EIFS caused to the house’s structure or to its environs.” Thus, “to the extent that the EIFS caused damage to the structure of the house or its immediate environs,” plaintiffs retained a viable cause of action against Sto, the product’s manufacturer.

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