On appeal from the Superior Court, Law Division, Bergen County.
King, Long and R.s. Cohen. The opinion of this court was delivered by Long, J.A.D.
[246 NJSuper Page 591] By leave granted, defendant Home Owners Warranty Corporation (HOW) appeals from an order denying it summary judgment under the election of remedies provisions of The New Home Warranty and Builders' Registration Act, N.J.S.A. 46:3B-1, et seq. and its regulations, N.J.A.C. 5:25-1.1, et seq. While we disagree with the grounds advanced by HOW as entitling it to summary judgment, we are satisfied that the
action against it should have been dismissed. Thus, we reverse.
The case arose when Oak Trail Road Homeowners Association and certain named homeowners, as representatives of a class of all homeowners in the development known as Oak Trail Road in Englewood, filed a complaint against defendants, The Royal Mile Corporation, Complete Roofing Systems, Inc., Stephen R. Snyder, Total Comfort Heating and Cooling Co., Inc., David M. Brown, Howard Savings Bank, Liebman & Hurwitz, Dibiten USA, John Does 1 through 10 (fictional persons or entities) and HOW. The complaint alleged that due to the negligence of defendants, the Oak Trail Road development was fraught with numerous construction defects falling generally into three categories: roofing, heating/air conditioning, and landscaping/grading/site work. The complaint sounded in breach of contract, misrepresentation, breach of express and implied warranties, and strict liability for defective design, construction and supervision. The eighth count of the complaint alleged that HOW guaranteed against defects in the homes, was responsible for repairs and replacements, and failed and refused to act in accordance with its warranty.
HOW answered the complaint and, among other affirmative defenses, raised the issue of election of remedies. Thereafter, HOW moved for summary judgment on that ground, citing N.J.S.A. 46:3B-9. Without opinion, the trial judge denied the motion. HOW appeals.
Pursuant to The New Home Warranty and Builders' Registration Act, every purchaser of a new home in New Jersey is entitled to receive a builder's warranty as to certain defects. "To insure that there are funds to pay for defects in new homes, builders may either pay moneys into a State administered new home warranty security fund or may provide the buyer with insurance coverage from a private insurer approved by the Commissioner of the Department of Community Affairs, as an alternate new home warranty security program." Nolan
v. Homes By Brinkerhoff, Inc., 230 N.J. Super. 306, 307-08, 553 A.2d 392 (Law Div.1988). N.J.S.A. 46:3B-8. HOW, which is a mutual company owned by new home builders, administers a private insurance plan, the Home Owners Warranty Insurance Company (HOWIC). The plan was available in New Jersey before the state legislation was enacted and was the model for the state plan. See Timpone & O'Flanagan, Home Owner Warranties in New Jersey, 3 Seton Hall Legis.J. 203, 222-23 (1978); Fisch v. Bureau of Const. Code Enf., 238 N.J. Super. 410, 413, 570 A.2d 2 (App.Div.1990).
HOW has two elements -- the Home Warranty and the Risk Retention Insurance Policy. Briefly, they can be described this way:
Home Owners Warranty Corporation is a mutual company owned by builders of new homes who participate in the Home Owners Warranty program (the HOW program). The HOW program is an insurance program that runs for ten years. It consists of two major components -- the Home Warranty coverage and the Risk Retention Insurance Policy. A home builder participating in the HOW program issues a two year "Home Warranty" to the purchaser of a covered home. For the first year following the sale, the builder warrants that the house will be free of defects caused by non-compliance with the Approved Standards (the Standards) attached to the warranty. During the second year, the warranty continues to cover defects in the plumbing, electrical, heating, and cooling systems due to non-compliance with the Standards. During the two year warranty period, the builder also warrants that the home will be free from "Major Structural Defects," as the policy defines them. (The definition is set out in the Court's earlier opinion, 572 F. Supp.  at 1063 [(D.Del.1983)]). In the event that a defect occurs in an item covered by the two year warranty, the builder must repair, replace, or pay the reasonable cost of repairing or replacing, the defective item.
The second component of the program is the Risk Retention Insurance Policy, which builders participating in the HOW program purchase from HOW Insurance Company. In return for premium payments which vary depending on the length of time the builder has been in the HOW program and its claims experience, HOW Insurance agrees to insure against liability resulting from (1) a builder's default under the aforementioned two year home warranty, and (2) major structural defects in the home occurring in the third through tenth years of the policy. First, if a builder defaults on his obligations under the two year Home Warranty, HOW Insurance will either repair, replace, or pay the purchasers the reasonable cost of any covered repair or replacement on behalf of the builder. If HOW Insurance incurs ...