The opinion of the court was delivered by: Simandle, District Judge
This matter is presently before the Court on a motion to compel arbitration and stay the action submitted by Defendant National Home Insurance [Docket Item 4]. Plaintiffs Shao-Ming Hseuh and Jingle Hseuh (collectively, "Plaintiffs") oppose, arguing that their present claim does not fall within the scope of the arbitration agreement at issue and further that Defendant has failed to follow their own arbitration procedures, and so should be precluded from compelling arbitration. For the following reasons, the Court will grant Defendant's motion to compel arbitration and dismiss this action.
On September 9, 2005, Plaintiffs purchased a home from Genco Homes, LLC, the builder-vender for the property. (Compl. ¶¶ 1-3.) As part of the purchase, Genco provided Plaintiffs a Certificate of Participation in New Home Warranty Plan of 2-10 Home Buyers Warranty, which Plaintiffs, Genco (as the Builder), and Defendant, (as the Warranty guarantor), signed. (Certificate, Compl. Exh. A.) In so signing, Plaintiffs acknowledged receipt of the Home Buyers Warranty Booklet (HBW 207 NHJ). (Certificate, Compl. Exh. A.; Booklet, Def. Exh. 1.) The Warranty Agreement, though not an insurance agreement, is backed by insurance provided by Defendant to Genco. (Certificate, Compl. Exh. A.; Booklet, Def. Exh. 1 at 1.) The Booklet sets forth the scope of the Warranty coverage (Booklet, Def. Exh. 1 at 2, 5-6, 13-32), and the remedy process through the Warranty, (id. at 2-4, 6-7). In brief, to initiate the remedy process under the Warranty, the Homeowner must notify the Builder in writing, and if the Builder does not resolve the problem in a reasonable time the Homeowner files a Notice of Complaint form included in the booklet. (Id. at 2.) Copies of all paperwork must also be sent to Defendant. (Id.) The Builder then has thirty days to inspect the home and correct. (Id. at 4.) If disputes remain, the Warranty provides as follows:
Any and all disputes between the Homeowner(s) and Builder arising from or relating to the Warranty shall be submitted to arbitration. Pursuant to the New Jersey New Home Warranty and Builders Registration Act (P.L. 1977, C. 467) the filing of a claim against this limited Warranty shall constitute the election of remedy and shall bar the Homeowner from all other remedies. Nothing herein shall be deemed to limit the Homeowner's right to elect other remedies except that such election shall bar the Homeowner from pursuing the same claim under this limited Warranty and in accordance with the procedures related hereto. Election of other remedies shall mean the filing of a complaint, counter-claim, cross-claim or third-party complaint in any court that alleges matters covered by this limited Warranty in particular or unworkmanlike construction in general. (Id.) (emphasis in original).
Following an arbitration award in favor of the Homeowner, if the Homeowner and the Builder continue to dispute the repairs necessary, such dispute is referred to additional arbitration. (Id.) "If the Homeowner(s) remains dissatisfied after the Builder has completed the awarded repairs, the Home Buyers Warranty Administration Department will arrange with the arbitration service, upon the Homeowner(s)' request and at the Homeowner(s)' expense, to have a compliance inspection conducted," but only if such request comes within thirty days of the Builder's work performance deadline. (Id.)
The Warranty also lays out the procedure should the Builder fail to meet its obligations under the Warranty:
A. If a claim should arise during the applicable Warranty Term and if that claim occurrence and submittal is in compliance with all the provisions as noted in the Builder Warranty Coverage sections and the Builder fails to perform his/her warranty obligations, the Insurer [Defendant*fn1 ] will take the place of the Builder in regard to all qualified defect claims and any arbitration decisions rendered against the Builder.
B. Within fifteen (15) days of receipt of the complaint file, the Insurer [Defendant] will acknowledge receipt of the claim and begin the investigation. The Homeowner(s), Service and Insurer [Defendant] retain the same rights to conciliation and arbitration as the Builder.
Sometime prior to October 10, 2007, Plaintiffs filed a claim against Genco under the Warranty relating to various defects in their home, including use of the wrong top soil on their property. (Initial Arbitration Decision, Def. Exh. 5.) Consistent with the Warranty remedy process, when the dispute could not be resolved it was referred to an arbitrator. (Id.) On October 10, 2007, the arbitrator found in favor of Plaintiffs as to all claimed defects. (Id.) On February 12, 2008, an appellate arbitrator affirmed in part and reversed in part the October 10th decision, finding that Plaintiffs' claims regarding top soil were not covered by the Warranty. (Arbitration Appeal, Def. Exh. 6.) On April 2, 2008, Plaintiffs filed a petition to vacate the appellate arbitration award with the Superior Court of New Jersey and served Genco, who did not answer or otherwise appear. (Compl. ¶¶ 16-17.) On October 31, 2008, the Superior Court entered default judgment against Genco, reinstating the October 10, 2007 arbitration award (including the award regarding top soil deficiency) and entering judgment in the amount of $95,220 against Genco. (Default Judgment, Def. Exh. 7.)
Genco has failed to satisfy the default judgment and failed to make the repairs required by the October 10th arbitration award. (Compl. ¶ 19.) In December 2008, Defendant did offer, and Plaintiffs accepted, a cash settlement for the unresolved repairs required under the appellate arbitration award, but not including the top soil dispute. (Pl. Exhs. C-14, C-16.) Plaintiffs allege that "[t]he judgment entered against Genco Homes LLC constitutes a claim which falls within the terms of the coverage afforded by the policy issued by [Defendant]." (Compl. ¶ 21.) This is because Defendant "issued a policy of insurance, as is referred to in the 2-10 Home Buyers Warranty booklet, which is to afford coverage renumeration/ payments to claimants and homeowners in the event of default by the Builder, Genco , in connection with claims made pursuant to the Home Buyers Warranty." (Compl. ¶ 10.) Defendant has refused to satisfy the default judgment or remedy Plaintiffs' complaints regarding the top soil on their property. Defendant has also declined to engage in compliance arbitration, maintaining instead that the dispute requires regular arbitration. (Pl. Exh. E.)
Plaintiffs seek relief for breach of the Warranty insurance policy, bad faith for failing to make payments required by the Warranty insurance policy, and breach of the covenant of good faith and fair ...