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Aqua Beach Condominium Association v. Department of Community Affairs

186 N.J. 5, 890 A.2d 922 (2006)

HOMEOWNER WARRANTIES—Claim of emergency or not, when, without permission from a court or from the Homeowner Protection Bureau, an owner repairs an item that it claims should be covered by the new construction warranty, it waives its claim.

A condominium association was certified to participate in the Home Warranty Security Fund. However, only 11 of the 24 eligible units actually enrolled for participation. After noticing defects in the construction of the common elements, the association submitted a letter to the Bureau of Homeowner Protection advising the Bureau that the association was submitting claims for the repair of the common elements to the Home Warranty Security Fund. The Bureau of Homeowner Protection notified the association that because only 11 out of 24 units were actually enrolled in the program, the Bureau of Homeowner Protection would provide money to pay for repairs in proportion to the number of units covered by the program. It also required the association to submit at least two estimates from separate contractors before the Bureau would release money from the Fund. Despite warnings from the Bureau that failure to submit at least two estimates for the repair work would result in an administrative denial of payment, the association never submitted any estimates. Based on the association’s failure to submit any estimates, the Bureau closed its file on the matter.

The association requested a hearing and the request was transferred to the Office of Administrative Law. In the meantime, the association hired a contractor and completed the repair work without notifying the Bureau. The Administrative Law Judge (ALJ) granted the Bureau’s motion to dismiss the claim. The ALJ held that because the association hired a contractor and completed the repairs without submitting at least two bids to the Bureau, and because the repair work was performed without the written authorization from the Bureau, the association was precluded from relief under the New Home Warranty Program. Further, the ALJ held that the repairs could not be reimbursed simply because the association claimed the repairs were of an emergency nature. Finding that the association failed to follow the administrative procedures for securing approval for emergency repair work, the ALJ held that the association’s claims were excluded from coverage under the Fund. The Commissioner of the Department of Community Affairs adopted the ALJ’s order granting the Bureau’s motion to dismiss.

The association appealed, but the Appellate Division affirmed the Commissioner’s final decision. It held that the association’s decision to proceed with repairs knowing it had not submitted at least two competing bids and knowing it had not obtained written approval from the Bureau acted to void any obligation by the Home Warranty Security Fund to reimburse the association for the costs of those repairs. The Appellate Division further found that the actions of the Bureau and of the Commissioner were not arbitrary, capricious or unreasonable. The facts did not support the association’s claim that the Bureau prevented the association from obtaining authorization by arbitrarily or unreasonably handling the claim for reimbursement. The association appealed again.

On further appeal, the Supreme Court affirmed the judgment of the Appellate Division. In reviewing a decision of an administrative agency, the Court noted its role is limited to the following three inquiries: (1) whether the administrative agency violated a legislative policy expressed in the enabling legislation; (2) whether the evidence in the record supported the factual findings of the administrative agency; and (3) whether in its application of the facts to the policies, the agency erred by reaching a decision that could not reasonably have been made after weighing all factors. Finding that the legislature entrusted to the Commissioner the obligation to draft rules and procedures regarding the disbursement of money from the Home Warranty Security Fund, the Court held that there was nothing arbitrary, capricious or unreasonable in the procedures requiring a claimant to submit at least two competing bids prior to receipt of written approval from the Bureau before commencing the repair work. The record was devoid of any finding that the Bureau applied its procedures in this instance differently than it applied its procedures to other applicants. The Court held that the informed decision of the association to proceed with repairs without obtaining approval from the Bureau voided the Fund ‘s obligation to reimburse the association for the costs of the repairs.

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