On appeal from the Commission of the Department of Community Affairs.
Michels, Deighan and Brochin. The opinion of the court was delivered by Deighan, J.A.D. Brochin, J.A.D. (dissenting).
[238 NJSuper Page 411] This is an appeal of a final decision of the Commissioner of the Department of Community Affairs (Department) denying
petitioners George and Sydney Fisch (petitioners) an award under the New Home Warranty and Builders' Registration Act, (Act) N.J.S.A. 46:3B-1 et seq.
Petitioners and intervenor Today's Lifestyle (builder) participated in the claims procedures under the New Home Warranty Program (Warranty Program). The Bureau of Homeowner Protection (Bureau) denied the petitioner's claim in a letter dated February 19, 1987. The petitioners requested an administrative hearing which commenced on May 12, 1988. After the petitioners acknowledged that the defects in the construction of their home, which were the subject of the arbitration awards, were already being corrected, the Bureau and the builder moved for summary disposition.
The Administrative Law Judge (ALJ) concluded that because petitioners had contracted for the work on the subject matters in dispute, they were precluded from payment for that work under the Warranty Program. Based upon this voluntary action, the ALJ granted the motions for summary disposition and dismissed the petitioners' appeal. The Commissioner of the Department accepted the initial decision of the ALJ. Petitioners appeal from the Commissioner's decision.
The New Home Warranty and Builders' Registration Act (Act), N.J.S.A. 46:3B-1 et seq., governs the administration of Warranty Programs applicable to new residential construction. The Act requires all builders constructing new homes in New Jersey to register with the Department, N.J.S.A. 46:3B-5, -2. The Department must be shown proof of participation in a "security fund," N.J.S.A. 46:3B-5, either the State Warranty Fund or an approved alternative security fund. Id. The builder opting to join the State plan participates in a security fund (Fund) established by the State, N.J.S.A. 46:3B-7a. The purpose of the Fund is to protect the consumer from the builder who, after exhaustive administrative remedies, "is unable to or
willfully refuses to correct . . . deficiencies. [In that event] an amount sufficient to cure the problem shall be paid from the fund to the [home]owner." N.J.S.A. 46:3B-7c.*fn1
The Act stems from a voluntary Home Owner's Warranty Program (HOW), which was inaugurated by the National Association of Home Builders, Timpone and O'Flanagan, supra, note 1, at 218, and funded by a private insurance company. Id. at 219. The Act is modeled primarily after the voluntary HOW program. Id. at 222. The Warranty Program was adopted to address two major concerns: (1) that a builder may subject the consumer to a long and costly court battle before making payment on a legitimate claim; and (2) that a claim may be uncollectible if the builder goes out of business or is incapable of paying a large claim or series of claims. Id. at 221. The builders throughout the State, faced with the prospect of having 567 different municipal ordinances with which to comply, sought an alternative. Id. at 221. The Act preempts any municipal ordinances and regulations concerning builder licensing and registration. Id. at 224; N.J.S.A. 46:3B-12. Enforcement and collection is left in the hands of the Commissioner. Id. at 224; N.J.S.A. 46:3B-12.
The warranties established under the statute, in pertinent part, state:
(1) One year from and after the warranty date the dwelling shall be free from defects caused by faulty workmanship and defective materials due to noncompliance with the building standards. . . .
(2) Two years from and after the warranty date the dwelling shall be free from defects caused by faulty installation of plumbing, electrical, heating and cooling delivery systems; however, in the case of appliances, no warranty shall exceed the length and scope of the warranty offered by the manufacturer.
(3) Ten years from and after the warranty date [the dwelling shall be free from] major construction defects. [ N.J.S.A. 46:3B-3b(1), (2) and (3); see Timpone and O'Flanagan supra, note 1, at 224.]
Under the procedure for enforcement of the Act, the owner notifies the builder in writing of the defect in the hope of an informal reconciliation. N.J.S.A. 46:3B-7c. The builder must respond within 30 days. N.J.A.C. 5:24-5.5(b)2. Failing in that, the parties may agree to arbitration with an arbitrator designated by the Department which issues a binding decision. N.J.A.C. 5:24-5.5(e)1(a). Where the parties cannot agree to binding arbitration, the Department will provide a hearing, N.J.A.C. 24-5.5(e)1(b), in accordance with the New Jersey Administrative Procedure Act, N.J.S.A. 52:14B-1 to -13. Once the owner initiates the dispute settling mechanism, the owner is barred from the use of all other legal remedies until the dispute settling mechanism is exhausted. N.J.S.A. 46:3B-9; see Timpone and O'Flanagan, supra, note 1, at 225. If the builder fails to perform, the Fund provides the money to make the repair. N.J.S.A. 46:3B-7a.*fn2
The Commissioner is authorized and directed to prescribe by rule or regulation the new home warranty and the procedure for implementing and processing claims against the Fund. N.J.S.A. 46:3B-3a. Pursuant to this authority, the Commissioner adopted Regulations Governing New Home Warranties and Builder's Registration. N.J.A.C. 5:25-1.1 et seq.
Despite the controversy between the petitioners and the builder concerning the defects in construction and the remedies required to correct the defects, the procedural steps leading to the present appeal are essentially undisputed.
In 1984, petitioners purchased a new colonial style home from
Today's Lifestyle,*fn3 located at 6 Morgan Road in Flemington, Raritan Township, for the price of $208,125. A certificate of participation in the Security Fund was issued, effective September 30, 1984. On November 15, 1984, a Raritan Township construction official issued a certificate of occupancy.
After moving into the home, petitioners notified the builder of certain defects and omissions in the home. Subsequently, the parties consented to a formal dispute settlement by arbitration. As a result, on April 11, 1985, the arbitrator, Ellward Laskin, issued an award of arbitration, listing some 35 items to be corrected or rectified. On October 16, 1985, another award was issued supplementing the first award and noting several items which were previously addressed but not rectified.
On January 29, 1986, the Department, through Richard W. Vogel, A.I.A., its claims supervisor under the Warranty Program, sent a letter to petitioners enclosing his home inspection report based on the first two arbitration awards. The letter noted that the builder was in default of the Act and that the Warranty Program would stand in the builder's place and pay to have the defects corrected. The letter made comments concerning some of the items, but required petitioners to obtain bids for approval before the authorized corrections could be made: "You will find enclosed copy of our Work List which is to be used by you to obtain a minimum of two bids from contractors. When received they should be forwarded to our office for review. Upon approval, you will then be authorized to have the work done. (Emphasis supplied.)
In the meantime, on July 2, 1985, petitioners obtained a report from Engineer Inspections Systems, Inc. (EIS), listing some 14 defects in the home which did not comply with the "Boca Basic National Building Code, (1984 ed.)," adopted by the State as its Building Code. In addition to the 14 items, the
report contains a general discussion concerning other deficiencies. Petitioners forwarded a copy of the report to the Raritan Township construction official who, on September 30, 1985, wrote to petitioners and essentially discounted many of the 14 items commented upon by EIS.
Petitioners then forwarded to the Warranty Program's claims supervisor two estimates to correct or rectify the defects in the home. One, dated November 10, 1986, from Princeton Home Inspection, itemizes the work to be performed at a total cost of $52,450 to rectify the defects. Included among the items was a removal of all siding on the property and installation of a new roof. Petitioners submitted a second estimate, dated November 11, 1986, from Ray Jones, a roofing and siding contractor. The second estimate, which apparently was a partial estimate, was for $23,725 and it was also forwarded to the claims supervisor. Here again, the estimate indicated, among other things, the complete removal of the roof and siding and the reinstallation of a new roof and siding. Neither of the estimates followed the itemized Work List form sent to petitioners 0 by the claims supervisor. The Work List required the estimators to fill in specific amounts for each of the 14 items, none of which referred to roof and siding replacement but merely referred to roof shingle repair of some roof shingles and the closing of gaps on some of the siding.
In November 1986, petitioners, their attorney and the claims supervisor met to discuss the inspection reports submitted by petitioners. As a result, on November 25, 1986, the claims supervisor wrote to petitioners rejecting the estimates:
After a full review of the claim file, I will make note for the record that on January 29, 1986, you were provided a copy of our inspection report based upon the two above-referenced Arbitration Awards. Included with that transmittal was the Work List which was ...