NJ New Home Warranty Program
- Home Owners Beware
For homeowners in New Jersey, trying to obtain coverage through the Home Warranty Program is often frustrating at best, especially for structural defects.
After years of seeing results of numerous homeowner claims, it is reasonable to conclude that New Jersey should not be in the home warranty business. Homeowners are fooled into believing they have substantial coverage, when in fact, the program protects builders from having to take responsibility for defective construction.
New Jersey requires that the builder of a new home must provide the buyer with a home warranty policy, either through a private company or through a state policy. The Bureau of Homeowner Protection (within Department of Community Affairs) manages their New Home Warranty Program (NHWP).
Each warranty includes 10-year coverage for "major structural defect". One key problem is that, as very often occurs in the legal world, terminology that may sound like plain English is most definitely not. The warranty includes an ambiguous definition for "major structural defect" that defies logic, unless of course you are trying to avoid paying for defects.
Of greater concern is that, when a homeowner seeks arbitration of an adverse ruling from Home Warranty, they may give up the right (whether knowingly or not) to sue the builder in court. However, as described in an online article by The Law Offices of Richard Malagiere, this basic feature of the New Home Warranty and Builders Registration Act is not necessarily enforceable, as explained in the Malagiere article;
"The very language of HOW’s insurance contract advised the homeowners of their right to bring a civil action if dissatisfied with the findings of the dispute settler. In light of the contract’s express terms and since the Act does not expressly bar a subsequent civil action by a homeowner who disagrees with the conclusions of the dispute settler, the court refused to incorporate the Act’s election of remedies provision into the contract. The court also held that by participating in a dispute settlement proceeding, a homeowner is only engaged in conciliation and not the pursuit of a claim. Therefore, such participation does not trigger the election of remedies provision of the Act."
NJ Home Warranty Program representatives do not provide any information (to owners) about the chances for obtaining coverage before they are trapped in the process.
Example of Home Warranty Process
A recent example demonstrates the potential risk of seeking coverage through the New Home Warranty Program (NHWP).
In this case, owners managed to obtain coverage for major structural defects. However, NHWP has (so far) been able to avoid paying for necessary repairs.
Owners of a two-story single-family house, built several years ago, have warranty coverage provided by the builder through the state policy.
In early 2009, owners discovered that what appears to be the bottom of the back wall was pushed inward. Vinyl siding covering the bottom 12 inches of the wall (actually the edge of first floor) is clearly "bent" inward. Further investigation in the basement revealed that the top of the precast concrete foundation wall, supporting the two-story high back wall, was also pushed inward, as much as two inches relative to the straight vertical (plumb) position.
Owners filed a claim with NHWP in May 2009. After inspection, the NHWP Claims Analyst made a determination that inward movement (tilt) of the back foundation wall was a "major structural defect". However, the only "repair" that would be allowed would be installation of wood blocking to (supposedly) prevent further inward movement. Not only was the foundation wall to remain in the tilted position, but the edge of first floor (under back wall) was also to remain pushed inward, with the noticeable "bent" appearance.
As just about any homeowner can understand, owners were not happy with this "coverage". They called in their own structural engineer (this writer) to evaluate the conditon.
For this house, first floor joists are parallel with the back foundation wall. These floor joists are wood I-beam type, most commonly identified as "TJIs", based on the trade name for the original I-beam joists which became available more than 30 years ago.
The precast concrete walls were installed (by the builder) as a substitution for the more traditional block foundation walls specified by the architect on building design plans that were released for construction by code officials. However, there is no record that the builder ever submitted design plans for this substitution, as should have been required by the code official.
Essentially, the problem occurred due to lack of proper design for the precast foundation wall system, which is even more dependent on proper lateral bracing along top of wall than block or plain concrete foundation walls. Considering the lack of any design plans, this major error is not all that surprising.
When looking along top of foundation wall from inside the basement, by moving loose fiberglass insulation, it was clear that the bottom face (flange) of a wood I-beam edge joist, on top of the foundation wall (and directly under back wall of house), had been pushed inward along with top of foundation wall. This twisted edge joist was the cause of the "bent" condition seen along bottom of the back wall. In fact, it was the edge of the first floor that was bent inward, not the bottom of the wall.
However, any reasonable observer would conclude that support for the two-story high back wall was compromised to the point that the twisted edge joist should also be included in the "major structural defect" category.
Luckily, second floor joists also span side-to-side (at least per design plans), so that the back wall must support only small load from second floor. Roof rafters also span side-to-side. However, the twisted edge joist must still support weight of the two-story back wall as well some small load from second floor and roof.
As required by the NHWP process, an arbitration hearing was held in November 2009, at the property. The "independent" arbitrator (working for NHWP) performed an inspection, along with this writer, homeowners, contractor for owners and the NHWP claims analyst.
The arbitrator, who was a professional engineer (PE) licensed in New Jersey, recognizing that the twisted edge joist was a defective condition, made a clear ruling that the edge joist was also a "major structural defect" that must be repaired along with the tilted foundation wall. Owners thought that this ruling would resolve the impasse with NHWP. Owners were wrong.
Part of the problem was that the arbitrator (in the written "award") provided "Background" description that was somewhat ambiguous. Owners were not given any opportunity to review this background information to ensure that it is factually correct.
Knowing how the NHWP process works, the Claims Analyst requested "clarification" of the arbitration award (from Office of Dispute Resolution; ODR) by submitting a letter with several questions and "suggestions" for revising the written arbitration award. Essentially, the Claims Analyst, by taking advantage of a process that is skewed in favor of NHWP, was applying pressure from the arbitrator's employer (NHWP).
A representative of ODR submitted written response to the Claims Analyst, supposedly based on "answers" from the arbitrator. Overall, this response was more ambiguous than the award. However, ODR did at least emphasize that repair work must be designed by a PE licensed in New Jersey (and hired by the builder), and "The Arbitration Award does not provide any methodology of repair."
As allowed by NHWP, the builder decided to bail out entirely. The Claims Analyst then requested that owners obtain "fee proposals" from two professional engineers to repair the major structural defect.
To get to this point took more than 9 months from the date the claim was filed.
The Claims Analyst (who claimed to be licensed as a PE in some other state) rejected proposals from this writer (and another PE) that called for excavating outside to allow for pushing the tilted foundation wall back into the plumb (straight) position. The twisted edge joist could then be restored to the proper position, directly under the back wall.
The Claims Analyst was now insisting that the design of repairs should conform to his specific requirements (leaving foundation wall tilted), contrary to clear instructions of the arbitrator (as clarified) that design of necessary repairs must be developed only by a PE hired by the owners. The Claims Analyst contended that the edge joist could remain outside the tilted foundation wall, with the verbal explanation that "carpenters" told him such "repair" was possible.
After numerous letters (including a "response" from NHWP that they can not respond to the PE working for owners), NHWP continues to refuse to pay for design plans to show requirements for making repairs to the acknowledged structural defects.
Homeowners report that, in a phone discussion, the Claims Analyst told them that NHWP would never pay anything for their claim.
NHWP has also allowed the builder, who clearly is at fault for this problem, to simply avoid all responsibility.
Owners continue to seek resolution with NHWP. They have even contacted their state senator for assistance without much results to date. They may pursue legal action if allowed by the courts.
Update: In July 2011 owners finally obtained partial coverage, but only after the previous claims administrator moved on so that a new claims administrator took over.