On appeal from Department of Community Affairs.
Before Judges Skillman, Lefelt and Winkelstein.
The opinion of the court was delivered by: Skillman, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 10, 2002
The New Home Warranty and Builders' Registration Act, N.J.S.A. 46:3B-1 to -12 (the Act), imposes responsibility upon a new home builder for any covered defect occurring during an applicable warranty period, N.J.S.A. 46:3B-4, which includes a ten-year period for major construction defects, N.J.S.A. 46:3B- 3(b)(3). The Act requires every builder to register with the Department of Community Affairs and to participate in the new home warranty security fund (the Fund). N.J.S.A. 46:3B-5.*fn1 The Commissioner of Community Affairs (Commissioner) establishes the amounts builders must pay into the Fund to cover anticipated claims and administration costs. N.J.S.A. 46:3B-7(a). The Fund is required to pay the homeowner an amount sufficient to correct a covered defect if a builder is unable or wilfully refuses to correct the covered defect or the claim arises during the third to tenth year of the warranty. N.J.S.A. 46:3B-7(c); N.J.A.C. 5:25-5.2(a). The Commissioner has delegated responsibility for processing claims against the Fund to the Bureau of Homeowner Protection (Bureau). N.J.A.C. 5:25-1.4. The Commissioner is required to adopt rules and regulations prescribing specific standards for the statutorily mandated warranties and procedures for processing claims. N.J.S.A. 46:3B-3(a).
One of the regulations adopted by the Commissioner to implement the Act requires a homeowner who submits a claim to obtain prior authorization from the Bureau for any covered repair work. N.J.A.C. 5:25-5.5(e)(2). In Fisch v. Bureau of Constr. Code Enforcement, 238 N.J. Super. 410, 420-21 (App. Div. 1990), we sustained the validity of this administrative regulation. In the present appeal, we must decide whether the Bureau may invoke this regulation as the basis for denial of a claim if the Bureau's arbitrary processing of a claim has prevented a homeowner from obtaining timely authorization for covered repairs. We conclude that it is unreasonable to deny a claim based on a homeowner's failure to obtain the Bureau's prior authorization to proceed with covered repairs if the Bureau's own arbitrary processing of the claim prevented the homeowner from obtaining that authorization.
In 1991, appellants, Bansi and Priya Lakhani, purchased a new home for $850,000. In 1996, appellants began to notice cracks and other signs of structural defects in the home. Appellants wrote a letter to the builder concerning these conditions, but were informed he was bankrupt.
On September 27, 1996, appellants filed a claim with the Bureau. In early October, the Bureau informed appellants that their home was in the seventh year of warranty and that their claim was therefore limited to"major structural defects," as defined by N.J.A.C. 5:25-1.3.
On October 3, 1996, Bart Sowul, a Bureau claims supervisor, inspected appellant's home. On October 10, 1996, Sowul sent a letter informing appellants that his inspection had"revealed a major structural defect which is covered within the ten year warranty period" and that"[t]he State Plan will now assume the responsibility to pay for having the warranted defect corrected." The inspection report accompanying Sowul's letter indicated that three beams on the right side of the first-floor framing were deflecting due to concentrated loads on the second floor and that the wall studs along two walls had been cut excessively to accommodate plumbing fixtures. Sowul authorized appellants to repair or replace the three deflecting beams and the first floor exterior bearing walls. The inspection report rejected appellant's other warranty claims on the grounds that the alleged defects either were not visible or did not constitute"major structural defects." In addition, the letter directed appellants to submit certain documentation in support of their claim.
Around the same time as Sowul's initial inspection, the structural engineering company which had inspected the home on appellants' behalf, T.R. Bharati, P.E. (Bharati), advised appellants that the home was unsafe and should be vacated immediately. Appellants followed this advice and temporarily relocated to a relative's home. When appellant Bansi Lakhani testified three years later at an administrative hearing, he and his family still had not been able to reoccupy their home.
On November 8, 1996, appellants sent Sowul a report prepared by Bharati which identified other major structural defects in the home and asked Sowul to conduct a follow-up inspection.
On November 18, 1996, Sowul replied that Bharati's report indicated that its inspections of the home were incomplete and that Sowul would not conduct a further inspection until the"investigations are complete and all deficiencies are known through reasonable diligence and substantiated."
On November 19, 1996, appellants sent another letter to Sowul, which indicated that"with the exception of any latent defects that cannot be discovered at this time,... Bharati... does not foresee submission of any additional defects, thus no additional inspections would be required[,]" and requested Sowul to"perform a follow up inspection at [his] very earliest convenience."
On December 3, 1996, Sowul informed appellants he would not conduct a follow-up inspection until they sent him certain documents he had requested in his October 10, 1996 letter.
On December 30, 1996, appellants sent Sowul extensive documentation in support of their claim, which included a complete work list and report by Bharati that discussed the probable causes of the defects in their home and general cost estimates for completion of the recommended repairs. The letter transmitting these documents stated that"[t]he above documents will be utilized to obtain bids in accordance with the sealed construction documents and specifications for the repair/replacement project." In addition, appellants requested Sowul to"now consider conducting the follow up inspection to address the additional items discovered by Mr. Bharati since your inspection."
On January 8, 1997, appellants sent Sowul two bid estimates from building contractors to perform the work required to correct the defects covered by the warranty, one by Vincent De Rosa, Inc. (De Rosa) for $629,503 and the other by D. Gencarelli Building & Equipment Corp. (Gencarelli) for $654,615.
On January 14, 1997, appellants sent Sowul a letter enclosing a copy of a contract with Bharati for the engineering services required in connection with the repairs covered by the warranty and requesting payment in the amount of $24,900 for those services.
On January 22, 1997, Sowul sent appellants a letter in response to their December 30, 1996 letter, which asserted that appellants had failed to provide any of the documents he had requested in his October 10, 1996 letter. In addition, Sowul stated that"the bid prices for the items on the work list dated October 10, 1996 are EXCESSIVELY HIGH AND UNACCEPTABLE for the amount of work involved" and that appellants were required to submit two new bids. Although Sowul's letter made no reference to appellants' January 14, 1997 letter transmitting the contract for Bharati's engineering work, Sowul later testified that the bid price he found to be excessive was the $24,900 contract price for Bharati's ...