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Hudak v. Bureau of Homeowner Protection

OAL Dkt. No. CAF6857-03 (Bureau of Homeowner Protection 2004) (Unpublished)

CONTRACTORS; NEW HOME WARRANTY; DRYVIT—Even though the Stucco Settlement Panel denies a claim because the Dryvit material used on a project was not one that was covered by the Stucco Settlement, the home buyer may still have a valid claim under the New Home Warranty Program and an inspection by the Stucco Settlement Panel examiner may be used as evidence in the prosecution of that claim.

A buyer purchased a home on October 17, 2002 as new construction and the builder was also the seller. On or before closing, the buyer spoke to the builder concerning certain rumors about the exterior construction of the home. The buyer testified that he had heard speculation and rumors that the Dryvit siding material was defective. Approximately thirty-five percent of the home was covered with it. Between October 2002 and September 2003, the buyer observed water spots on the ceiling. The affected area was at the intersection between the exterior Dryvit and various roof slopes between the house and the garage. Upon noticing these water spots, the buyer more closely inspected the Dryvit on the exterior of his home and observed what he believed to be defects and poor workmanship. Based on his request, the builder initiated a pre-closing inspection of the Dryvit. On November 20, 2002, about a month after the closing, an expert from the Stucco Settlement Claims Administrator inspected the premises and concluded that the Dryvit material was improperly installed and that an unacceptable amount of moisture was infiltrating the siding and substrate material.

The builder, based on the buyer’s request, had inquired as to the quality and/or warranty claims regarding the Dryvit materials. After February 18, 2003, the builder received a letter from the Stucco Settlement Claims Administrator. The letter stated that the property was not made with a qualifying Dryvit as defined in a prior settlement agreement which was part of a class action suit regarding Dryvit materials. Thus, the buyer’s claim did not fall within the type or group of claims that comprised the class action, and the builder had no basis to seek a claim or remedy in that particular class action claim involving Dryvit materials.

On May 29, 2003, in a letter to Department of Community Affairs (DCA), the buyer pointed out the problems and requested financial assistance to remove the defective Dryvit and replace it with stucco material. On July 29, 2003, a claims analyst for DCA inspected the buyer’s property. The analyst had no equipment and the inspection took about thirty minutes. His inspection consisted of walking around the property and taking photographs. He did not have a ladder to inspect high places. After the inspection, the DCA denied the buyer’s claim, concluding that the water infiltration was attributable to ice damming. Such infiltration is not covered by the New Homeowner Warranty Program. The buyer disagreed, arguing that its claims were much broader and included the defective installation of the Dryvit siding resulting in water infiltration.

The Administrative Law Judge (ALJ) concluded that the buyer had, in fact, provided convincing proof that the builder failed to comply with the minimum performance standards. The ALJ also held that the inspection performed by the expert from the Stucco Settlement Claims Administrator was more thorough than DCA’s and was corroborated by photographs, testing devices, building specifications, and other evidence. In contrast, the DCA inspection merely consisted of a visual inspection. Furthermore, the DCA claims analyst was not a trained, certified or experienced Dryvit installer or inspector.

The DCA also asserted that the buyer’s claim should have been denied because of the exclusive election of remedies principle based on the builder’s letter inquiry to the Stucco Settlement Claims Administrator. The ALJ found the inquiry by the builder was not a basis to preclude the buyer’s claim. First, the buyer was not a party to the inquiry. Second, it was not a determination on the merits regarding defects or workmanship. Third, no relief or remedy was provided. Fourth, the claims administrator simply stated that the builder could not be included in that class action lawsuit because the materials used were not those involved in class action. The builder was merely inquiring whether the Dryvit materials he used for the buyer’s home were part of the class action; and the answer was no.

The DCA Commissioner adopted the ALJ’s decision, adding that the buyer had demonstrated the existence of a leak. The Commissioner stated that a leak is a defect that is covered during the first year of the new home warranty. Therefore, the buyer was entitled to an award from the New Home Warranty Security Fund in an amount sufficient to pay for correcting the defect. The Commissioner also ruled that the issue about whether the builder complied with the Dryvit manufacturer’s installation instructions was not an issue relevant to eligibility for a Fund award. Failure to comply with a manufacturer’s installation instructions is not, itself, a defect. If such a failure to comply results in a defect, such as a leak, then the claim is compensable.


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