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Golomb v. Warwick Condominium Association, Inc.

A-5578-05T1 (N.J. Super. App. Div. 2007) (Unpublished)

CONDOMINIUMS; INSURANCE — Former unit owners at a condominium association have standing to claim, and are entitled to receive, their proportionate share of insurance proceeds received by the association in excess of the sum of the actual cost of repairs and any special assessment they may have paid toward those repairs.

A condominium association appealed from a partial summary judgment finding that it was liable to reimburse certain former unit owners. Those owners had sued to recover an assessment that was supposed to be used to repair storm damage to the condominium’s property after an insurance settlement provided most of the funding for the repair. These members sold their units before the insurance settlement was finalized.

The master deed for the association required the association to carry property insurance. After a storm damaged the property, the association assessed each then unit owner for funds to repair the property. Part of the assessment was to be kept in a reserve fund. Initially, the insurance carriers denied coverage, arguing that the damage did not arise from the storm. The association successfully sued the carriers. The repairs cost less than the amount of insurance funds ultimately received by the association.

The former unit owners sued their association to be reimbursed a proportionate share of the net proceeds received from the carriers. They alleged a breach of fiduciary duty. The unit owners relied on a statute which the lower court found unambiguous, and then it found that to the extent the insurance proceeds exceeded the cost of the repairs, the excess should have been paid to those owners who paid the assessment and not just kept by the association. The association argued that the lower court did not interpret the statute properly.

The Court emphasized the need to consider the legislative intent and plain language of a statue when construing that statute. It noted that the relevant statute requires that those seeking recovery had to be directly affected in order to share in the excess of the insurance proceeds. Here, the Court found that the complaining former owners were directly affected because they all paid the assessment and were all affected by the damage to the property. The statute further requires the disputed funds to be in excess of what was spent, something that the association argued was not the proper categorization of the funds. The Court ruled that since the assessed funds were no longer needed to repair the damage, they could be nothing but “excess.”

The association then argued that the statute at issue was not the relevant statute for the situation, as the proceeds were not immediately available because of the suit involving the carriers. The Court found this argument unpersuasive. It refused to follow the association’s logic because to do so would have prejudiced the members just because the carriers had wrongfully denied coverage and not paid at the proper time. The Court further found that the association had a fiduciary duty to its unit owners, and this duty did not end when the members sold their units.

Also, the Court was not persuaded by the association’s argument that the arrangement would be unfair to current owners. The Court found that the opposite would actually be true if the current owners were permitted to keep a windfall from the monies that were contributed by unit owners who had moved. It also noted that the association was correct in asserting that associations should have wide discretionary powers over association matters, but in the absence of a provision in the by-laws or master deed to the company, the association was not permitted to divert the funds for purposes other than reimbursing those who had funded the repairs.

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