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Fairfield Maintenance, Inc. v. General Accident Insurance Company

A-6103-03T5 (N.J. Super. App. Div. 2006) (Unpublished)

CONTRACTORS; DAMAGES; CONSTRUCTION LIENS; LIEN FUND —After its contractor defaults, an owner is entitled to a credit based not only on the amount it actually pays to its original contractor’s suppliers, but also the amount it saves in negotiating settlements with those suppliers because the amount saved by the owner in reaching the settlement must be treated as if they were a direct payment to the suppliers and should therefore by credited against the lien fund.

An owner of an apartment complex hired a contractor to replace and renovate the building’s heating and hot water plant. The contractor defaulted, and a supplier sued the contractor and its bonding company for monies owed. The bonding company sued the owner for equitable subrogation to the extent that the owner held money that it would otherwise have been required to pay to the contractor. In order to determine if the supplier was entitled to the payment of its fee by the owner, the lower court needed to calculate the contract price, then credit any payments made by the owner to the contractor and the suppliers. If the full value of the contract exceeded the amount of the owner’s credits, then the owner would be responsible for paying the supplier its fee. The sum to be paid by the owner was not to exceed the difference between the contract price and the amount of the credits. The lower court determined the value of the contract including the value of approved change orders. It then deducted the amount of payments made by the owner to the contractor, as well as payments made to the suppliers on the contractor’s behalf. The lower court then calculated additional credits due to the owner, which included the repayment of a loan owed by the contractor to a principal of the owner. It then calculated the total due by the owner to the supplier.

The owner appealed and the Appellate Division reversed. The Court agreed with the methodology employed by the lower court in determining the sum owed by the owner to the supplier. However, the Court found that the lower court had erred in crediting the owner only for payments the owner actually made to the contractor’s suppliers, but not crediting the owner for the amount it saved in negotiating settlements with some of the suppliers. The sum saved by the owner in reaching the settlement should have been treated as if it were a direct payment to the suppliers, and should therefore have been credited against the lien fund. After calculating the value of the settlement, the owner was entitled to a judgment in its favor. The owner also appealed the lower court’s determination that it was not entitled to reimbursement of attorneys’ fees from the contractor. The Court agreed with the lower court that the contract only provided for indemnification for claims attributable to bodily injury or destruction of property, but not for damages that arose from the contractor’s failure to pay its suppliers.


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