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Nicolosi v. Mark Anthony Carpentry, LLC

A-2272-09T3 (N.J. Super. App. Div. 2011) (Unpublished)

CONTRACTORS; NEW HOME WARRANTY — The New Home Warranty and Builders’ Registration Act does not grant a homeowner the right to pursue litigation to contest a warranty claim when the express terms of the warranty agreement clearly and unequivocally establish arbitration as the exclusive remedy.

Homeowners purchased a new home that was covered by a home buyer’s warranty issued by a private plan approved pursuant to the New Home Warranty and Builders’ Registration Act. The Act provides that homeowners must have the opportunity to pursue any remedy legally available to the owner; however, initiation of procedures to enforce a remedy constitutes an election barring the owner from all other remedies. However, a contractor can enroll a new house in a private plan. Such plans are not required to provide an election of remedies provision like that required under the “State plan” and instead are explicitly permitted to limit the available remedy to arbitration. A private plan is required to provide a full description of its complaint/claims process, a copy of the dispute settlement procedures and a full description of the manner in which dispute settlement will be conducted under the plan.

At the time of their home purchase, the homeowners executed a certificate of participation in a warranty plan and acknowledged receipt of certain warranty documents. One of the documents, a booklet, described the actions to be taken if the homeowner believes the home has a covered defect. First, the homeowner had to notify the builder in writing as soon as the defect was observed. If the builder did not resolve the issue in a reasonable amount of time, the homeowner was required to prepare a notice of complaint form and send a copy to both the builder and the warranty provider.

About a year after closing, the homeowners discovered cracks forming in the basement and water infiltrating through basement walls and pooling in the basement. They notified the builder, but the water problem remained unresolved. Consistent with the instructions in the booklet, the homeowners submitted a notice of a structural claim. Following an inspection, the warranty guarantor told the homeowners that it had found no structural defect as defined in the warranty. The guarantor also notified the homeowners, in writing, that the warranty permitted them to submit the claim to arbitration if they homeowner did not agree with the claim decision.

The homeowner did not dispute the claim denial until the filing of a second amended class action complaint nearly five years after their own claim was denied. In that complaint, the plaintiff alleged that the insurer breached its new home warranty contract and violated the Act by failing to honor a claim. The insurer filed a motion to compel arbitration and stay the action. The lower court acknowledged that the homeowners had each filed a claim that was denied. It then turned to the Act’s election of remedies provision. In denying the insurer’s motion, the lower court found the Act, not the contract, controlling, and found that the homeowner could seek recovery through either arbitration or filing a lawsuit.

On appeal, the warranty guarantor argued that the lower court erred by failing to enforce the provision of the booklet that made arbitration the exclusive remedy for a claim denial dispute. The Appellate Division agreed with the warranty guarantor, noting that in the case of private home warranty plans, the contract language, rather than the remedies available in the Act, controls. The Court found that the booklet clearly and unequivocally made arbitration the exclusive remedy because there was no mention, in the booklet, of any choice between litigation and arbitration or of any option to pursue litigation at any step in the claim or appeal process. Rather, the booklet’s provision unequivocally characterized the nature of the arbitrator’s decision as final and binding. Thus, the lower court had erred by not enforcing the provision in the booklet that established arbitration as the exclusive remedy.


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