NEW JERSEY CONSTRUCTION CLAIMS RESOURCES

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CONSTRUCTION CLAIMS

Limitations & Repose Periods

Statutes of Limitations

New Jersey’s two-year statute of limitations, N.J.S.A. 2A:14-2 applies to claims for bodily injury. Thus, for a construction accident, claims must be brought within two years of the date of the accident or be barred by the statute of limitations. As discussed below, there is, however, the “discovery rule.” Claims for damages to property are governed by N.J.S.A. 2A:14-1. This six-year statute of limitations applies to claims for damage or trespass to property as well as breach of contract claims other than those governed by the Uniform Commercial Code (UCC). A breach of contract claim for the sale of goods subject to the UCC must be brought within four years pursuant to NJ Rev Stat § 12A:2-725.

N.J.S.A. 2A:14-2 provides:

Every action at law for an injury to the person caused by the wrongful act, neglect or default of any person within this state shall be commenced within two years next after the cause of any such action shall have accrued; except that an action by or on behalf of a minor that has accrued for medical malpractice for injuries sustained at birth shall be commenced prior to the minor’s 13th birthday.
In the event that an action by or on behalf of a minor that has accrued for medical malpractice for injuries sustained at birth is not commenced by the minor’s parent or guardian prior to the minor’s 12th birthday the minor or a person 18 years of age or older designated by the minor to act on the minor’s behalf may commence such an action. For this purpose, the minor or designated person may petition the court for the appointment of a guardian ad litem to act on the minor’s behalf. N.J.S.A. 2A:14-2.

In New Jersey, the argument that the plaintiff failed to bring his, her or its claim within the applicable statute of limitations is an affirmative defense which must be pled in the responsive pleading. The statute of limitations can be tolled by active military service, insanity and may be modified by the so-called discovery rule. N.J.S.A. 2A:14-21 pertains to disabilities affecting the statute of limitation in actions involving a minor and N.J.S.A. 2A:14-22 addresses tolling of the statute of limitations generally. N.J.S.A. 2A:14-23.1 provides that where the statute of limitations on a claim relating to the death of a decedent has not run as of the date of his or her death, same shall not be barred until six months after the date of death. This effectively gives the estate a short window in order to appoint a representative and pursue a necessary claim where the statute of limitations was about to run at or near the time of the decedent’s passing. Claims for executing on a judgment or for rents have separate longer statutes of limitation. A plaintiff must use “John Doe” pleading in order to rely upon the so-called discovery rule to add a later-discovered defendant. N.J. Ct. R. 4:93 is the relation back rule pertaining to amendments of pleadings. N.J. Ct. R. 4:26-4 pertains to fictitious pleadings. Both rules require the exercise of due diligence on behalf of the plaintiff.

A party seeking to obtain the benefit of the so-called discovery rule must demonstrate by the preponderance of the evidence that it either knew nor should have known of the existence of the cause of the action or the party to be joined by the exercise of due diligence. The burden of proof with respect to the application of the discovery rule rests with the party seeking the benefit of that rule, typically the plaintiff. See, Yarchak v. Trek Bicycle Corp., 208 F. Supp.2d 470, 2002 U.S. Dist. LEXIS 11236 (D.N.J. 2002). N.J.S.A. 2A:14-1 which sets forth the period of limitation for a property damage or breach of contract claim not governed by the UCC provides in pertinent part:

Every action at law for trespass to real property, for any tortious injury to real or personal property, for taking, detaining . . . or for recovery upon a contractual claim or liability, express or implied, not under seal, or upon account other than one which concerns the trade or merchandise between merchant and merchant, their factors, agents and servants, shall be commenced within six years next after the cause of any such action shall have accrued. N.J.S.A. 2A:14-1.

The six-year statute of limitations with respect to damage to real or personal property specifically curves out actions pertaining to contracts governed by the UCC, as discussed above. See N.J.S.A. 12A:2-725.

Statute of Repose:

The statute of limitations sets forth a period of time after the accrual of the harm or injury within which a litigant has to file a claim. Conversely, the statute of repose is simply a period of time from completion of the work after which a party is deemed not to have a cause of action, even if the injury or damage was neither discovered nor discoverable during the statute of repose. New Jersey’s statute of repose is set forth at N.J.S.A. 2A:14-1.1. The statute which is entitled “damages for injury from unsafe condition of improvement to real property” provides in pertinent part:

No action, whether in contract, in tort, or otherwise, to recover damages for any deficiency in the design, planning, surveying, supervision or construction of an improvement to real property, or for any injury to the property, real or personal, or for an injury to the person, or for bodily injury or wrongful death, arising out of the defective and unsafe condition of an improvement to real property nor any action for contribution or indemnity for damages sustained on account of such injury shall be brought against any person performing or furnishing the design, planning, surveying, supervision of construction or construction of such improvement to real property more than 10 years after the performance or furnishing of such services and construction. This limitation shall serve as a bar to all such actions, both governmental and private, but shall not apply to actions against any person in actual possession and control as owner, tenant, or otherwise, of the improvement at the time the defective and unsafe condition of such improvement constitutes the proximate cause of the injury or damage for which the action is brought.
This section shall not bar an action by a governmental unit . . .

The statute of repose will not bar claims against owners or parties in possession or control of the property at the time of the incident or damage. The distinctions between the statute of repose and the statute of limitations are significant as it relates to co-defendants. In New Jersey a cause of action for contribution or common law indemnity is not deemed to have accrued until entry of a judgment. Such claims are typically brought in one action due to New Jersey’s entire controversy doctrine. New Jersey’s entire controversy doctrine is set forth in New Jersey Court Rule 4:30A. In short, all claims arising out of a transaction or series of related transactions must be adjudicated in a single proceeding. However, under the statute of repose, a party cannot even assert cross-claims for contribution or common law indemnity once the 10-year period has expired. The statute of repose does not bar any governmental claim associated with the removal of asbestos. However, in Barile v. 3M Co., Inc., 2014 N.J. LEXIS 542, the New Jersey Supreme Court determined that the installation of a boiler which may have utilized or necessitated asbestos constituted an improvement to real property for purposes of the statute of repose. Likewise, there is an exception to the 10-year statute of repose for governmental entities

Right to Repair Laws and/or Pre-Suit Statutory Procedures

This will often be covered by contract documents. New Jersey does have a prompt payment statute which triggers an obligation to pay based upon substantial completion. A plaintiff does have an obligation to mitigate damages.

Indemnity and Contribution

Indemnity

Common law indemnity is an equitable doctrine. See Promaulayko v. Johns Manville Sales Corp., 116 N.J. 505. One party may be entitled to common law indemnity where its liability is based upon passive or secondary fault or liability and the party from which it seeks indemnity had conduct which was active or primary. A party who is charged with vicarious liability of another may likewise seek common law indemnity.

Contractual indemnity is quite commonly encountered in construction defect and construction accident litigation. New Jersey prohibits enforcement of an indemnity provision in favor of an indemnitee where the indemnitee’s negligence was the sole cause of the damage in connection with construction projects. See, N.J.S.A. 2A:40A-1. Likewise, an indemnification provision, including the indemnity provisions contained within standard AIA documents which purport to provide indemnity without regard to fault are typically unenforceable in New Jersey to require an indemnitor to indemnify the indemnitee for the indemnitee’s own negligence. Azurak v. Corporate Property Investors, 347 N.J. Super. 516 (App. Div. 2002); Englert v. The Home Depot, 389 N.J. 44 (App. Div. 2006). Specifically, where the parties intend for the indemnitee to be indemnified even where there are allegations of the indemnitee’s own independent liability, the parties must expressly state. Absent such language, any Motion for Summary Judgment on the issue of indemnification in favor of the indemnitee will be denied. Thus, the indemnitee would need to await an adjudication and at which point it would only be seeking recovery of defense costs and fees.

Contribution

Contribution is essentially governed by the New Jersey Comparative Negligence Act N.J.S.A. 2A:15-5.1, et seq. Specifically, the Act abolishes contributory negligence in favor of comparative negligence and provides:

Contributory negligence shall not bar recovery in an action by any person or his legal representative to recover damages for negligence resulting in death or injury to person or property if such negligence was not greater than the negligence of the person against whom recovery is sought or was not greater than the combined negligence of the persons against whom recovery is sought. Any damages sustained shall be diminished by the percentage sustained of negligence attributable to the person recovering.

The Act goes on to provide in Subsection 5.2:

In all negligence actions and strict liability actions in which the question of liability is in dispute, including actions in which any person seeks to recover damages from a social host as defined . . . for negligence resulting in injury from injury to the person or to real or personal property, the trier of fact shall make the following findings of fact:

The amount of damages which would be recoverable by the insured party regardless of any consideration of negligence or fault, that is, the full value of the injured party’s damages.
The extent, in the form of a percentage, of each party’s negligence or fault. The percentage of negligence or fault of each party shall be based on 100% and the total of all percentages of negligence or fault of all the parties to a suit shall be 100%.

In an action in which a person seeks to recover damages for a social host for negligence resulting in injury to the person or to real or personal property, the negligence of any person in becoming intoxicated shall be considered by the trier of fact, and the trier of fact shall allocate a percentage of negligence to that person.
As used in this Section:

“Negligence action” includes, but is not limited to, civil actions for damages based upon theories of negligence, products liability, professional malpractice whether couched in terms of contract or tort and like theories. In determining whether a case falls within the term “negligence actions,” the court shall look to the substance of the action and not the conclusory terms used by the parties.
“Strict liability actions” includes, but is not limited to, civil actions for damages based on theories of strict liability, products liability, breach of warranty and like theories. In determining whether a case falls within the term “strict liability actions,” the court shall look to the substance of the action and not the conclusory terms used by the parties.

The judge shall mold the judgment from the findings of fact made by the trier of fact. N.J.S.A. 2A:15-5.2.

N.J.S.A. § 2A:15-5.3 discusses recovery of damages. Same provides in pertinent part:

N.J.S.A. 2A:15-5.3

Accordingly, any defendant assessed 60% or more of the verdict in essence becomes jointly and severally liable for the entire verdict whereas any defendant assessed less than 60% has only several liability. There is an exception with respect to environmental and toxic tort actions which places a more stringent form of joint and several liability on the parties at a much lower threshold.

Certificate of Merit – Experts

New Jersey’s affidavit of merit statute applies to require a minimum showing of a claim as to licensed professionals. The statute is codified at N.J.S.A. 2A:53A.26 et seq. The professionals to which the Act applies include accountants, architects, attorneys, dentists, engineer, physicians, podiatrists, chiropractors, registered nurses, healthcare facilities, physical therapists, land surveyors, registered pharmacists, veterinarians, insurance producers and certified midwives. (N.J.S.A. 2A: 53A-26). With respect to licensed persons, the statute requires an affidavit demonstrating lack of care to be served within 60 days following the filing of the defendant’s Answer. The statute sets forth the specific requirements for the affidavit including the proposed expert or professional’s qualifications in executing the affidavit. This statute speaks in terms of granting up to one additional 60-day period. However, no further extensions are permitted. Leave of court is required for the one additional 60-day period.

One exception to the strict requirement for the timely filing of an affidavit of merit is where the plaintiff provides a sworn statement in lieu of the affidavit setting forth the defendant failed to provide the requisite medical or other records necessary for the plaintiff to obtain the affidavit. Noncompliance with the affidavit of merit statute is deemed to constitute a failure to state a cause of action. N.J.S.A. 2A:53A-29. However, a defendant may not sleep on its rights in failing to move for dismissal in a timely fashion.

Economic Loss Doctrine

The economic loss doctrine in New Jersey arises out of the Product Liability Act. New Jersey’s Product Liability Act is codified at N.J.S.A. 2A:58C-1, et seq. Environmental tort actions are exempted from Product Liability Act. Otherwise plaintiff’s state law failure-to-warn claims under New Jersey Product Liability Act must be brought under the New Jersey Product Liability Act. N.J.S.A. 2A:58C-2 provides:

N.J.S.A. 2A:58C-2

N.J.S.A. 2A:58C-3 provides certain exemptions from liability. Likewise, Section 2A:58C-4 provides for no liability where a warning is provided. A plaintiff may not recover for purely economic losses in the absence of privity. Economic loss may be in the form of direct or consequential damages. Spring Motors Dist. v. Ford Motor Co., 98 N.J. 555, 566, 489 A.2d 660 (1985). The policy underlying the economic loss doctrine is to preclude a party from recovering in tort for purely economic loss. Travelers Ind. Co. v. Dammann & Co., 594 F.3d 238, 244 (3d Cir. 2010). The courts have typically found that public policy favors claims for economic loss being addressed by way of contract. Likewise, where the contract itself provides for specific warranties, the economic loss doctrine may serve as a bar to recovery of purely economic loss. Alloway v. General Marine Indus., 149 N.J. 630, 642, 695 A.2d 264 (1997). In the context of a large construction project with multiple contracts among the parties, the absence of a direct contractual relationship does not preclude the application of the economic loss doctrine. See, Spectraserv, Inc. v. Middlesex County Util. Auth., 2013 N.J. Super. Unpub. LEXIS 2173). The court in Spectraserv relied upon Leis Family, L.P. v. Silversword Eng. g, 126 Haw. 532, 273 P.3d 1218, 1225 (Haw. Ct. App. 2012) wherein the Court recognized:

Even in the absence privity of contract between the design professional and the project owner, the law does not impose a duty in tort if it would disrupt the contractual relationships between and among the various parties. Where, however, application of the economic loss doctrine would lead a party with no remedy, the court may be reluctant to apply the doctrine.

Contractor Licensing Requirement.

New Jersey requires state licensing for professional trades such as plumbers and electricians. Additionally, the New Jersey Consumer Fraud Act considers it a per se violation for a party to perform repairs and contracting work for consumers without being a registered New Jersey home improvement contractor. Home improvement contractors are considered companies involved in repairing, renovating, modernizing, installing, replacing, improving, restoring, painting, constructing, remodeling, moving or demolishing residential or non-commercial properties.

Common Law & Statutory Claims

Please see above.

Construction Damages

Cost of Repair

The type of damages recoverable by a party may be controlled by contract documents. A plaintiff may seek recovery in the form of cost of repair or cost of replacement.

Diminution in Value

Diminution in value may be calculated by cost of repair. See, St. Louis LLC v. Anthony & Sylvan Pools Corp., 206 N.J. Super. Unpub. LEXIS 1309. To the extent that the only damage sought to be recovered and calculable is diminution in value, the parties must be mindful of the economic loss doctrine discussed above. Alloway v. General Marine Indus., 149 N.J. 630, 642, 695 A.2d 264 (1997). Diminution of value is typically only appropriate where no other measure of damage exists or can be calculated.

Punitive Damages

It is unusual for an award of punitive damages to be entered in ordinary construction defect case. However, please see the New Jersey Consumer Fraud Act. Punitive damages actions may be an issue in construction accident claims, however. Punitive damages may be an issue in commercial or consumer transactions where there is a systemic issue of egregious conduct or practices. N.J.S.A. 2A:15-5.14 addresses awards and limitations with respect to punitive damages in New Jersey. The statute provides:

Before entering judgment for an award of punitive damages, the trial judge shall ascertain that the award is reasonable in its amount and justified in the circumstances of the case, in light of the purpose to punish the defendant and to deter that defendant from repeating such conduct. If necessary to satisfy the requirements of this section, the judge may reduce the amount of or eliminate the award of punitive damages.
No defendant shall be liable for punitive damages in any action in an amount in excess of five times the liability of that defendant for compensatory damages or $350,000, whichever is greater . . .

Claims brought under New Jersey’s law against discrimination are exempted from the Act as LAD claims have their own fee shifting provision.

NJ Rev Stat § 2A:15-5.12 sets forth the criteria for an award of punitive damages. Specifically, the statute provides:

Punitive damages may be awarded to the plaintiff only if the plaintiff proves, by clear and convincing evidence, that the harm suffered was the result of defendant’s acts or omissions, and such acts or omissions were actuated by actual malice or accompanied by a wanton and willful disregard of persons who foreseeably might be harmed by those acts or omissions. This burden of proof may not be satisfied by proof of any degree of negligence including gross negligence.
In determining whether punitive damages are to be awarded, the trier of fact shall consider all relevant evidence, including but not limited to, the following:

The likelihood, at the relevant time, that serious harm would arise from the defendant’s conduct;
The defendant’s awareness or reckless disregard of the likelihood that serious harm at issue would arise from the defendant’s conduct;
The conduct of the defendant upon learning that its initial conduct would likely cause harm; and
The duration of the conduct or any concealment of it by the defendant.

If the trier of fact determines that punitive damages should be awarded, the trier of fact shall then determine the amount of those damages. In making that determination, the trier of factual shall consider all relevant evidence, including but not limited to, the following:

All relevant evidence relating to the factors set forth in Subsection (d) of this section;
The profitability of the misconduct to the defendant;
When the misconduct was terminated; and
The financial condition of the defendant.

The punitive damages aspect of a trial may be bifurcated by defendant’s request. N.J.S.A. 2A:15-5.13. For a defendant knows of the product poses an unnecessary risk and refused to reduce the danger to an accepted level, punitive damages may be awarded. See, Fischer v. Johns Manville Corp., 103 N.J. 643, 512 A.2d 466 (1986).

Attorney’s Fees

Recovery of attorney’s fees will typically be a creature of the underlying contract documents. The New Jersey Consumer Fraud Act is a fee shifting provision. Same may be applicable to certain smaller projects and homeowner claims but typically does not have a place in a larger construction defect litigation. See N.J.S.A. 56:8-1, et seq. The Consumer Fraud Act applies to various categories of conduct and by regulation, incorporates a host of conduct and other actions which constitute per se violations of the Act.

Joint and Several Liability (specific to construction)

Please see above with regard to contribution and indemnity.

Cost Incurred to Access Repair Areas

This will typically be the subject of a dispute as to whether investigation and remediation activities were performed appropriately by the plaintiff versus a fishing expedition.

Consequential Damages

Certain CGL policies may define only consequential damages to constitute property damage and an occurrence within the policy. Cypress Point Condominium Association v. Adria Towers, LLC, 441 N.J. Super. 369 (2015). Typically, consequential damages are not the contractor’s own work but rather damage to other property or work as a result of the allegedly defective workmanship.

Coverage Trigger of Coverage

Definition of an Occurrence

Where the consequential damages to the property are neither expected nor intended, they would typically be deemed to be found property damage and an occurrence under the policy. Cypress Point Condominium Association v. Adria Towers, LLC, 441 N.J. Super. 369 (2015). The policy language will, of course always control.

Issues sometimes arise as to whether the “Your Work” exclusion applies. The so-called subcontractor’s exception found in many CGL policies states that “Your Work” exclusion does not apply where the damaged work or the work from which the damage arises. See, Belmont Condo. Ass’n v. Arrow Point Capital Corp., 2015 N.J. Super. Unpub. LEXIS 1749. For a comprehensive overview of what constitutes an occurrence in New Jersey see Morton Int’l v. General Accident Ins. Co., 134 N.J. 1 (1993).

Duty to Defend

Contractual Indemnity
Anti-Indemnity Statutes
Additional Insureds

Rarely does the issue of additional insureds arise more frequently than in the context of construction defect and construction accident litigation.

Coverage for AI’s own negligence vs. vicarious liability for Named Insured

New Jersey Courts will always look to the policy language first. Other evidence of additional insured status such as a certificate will not be sufficient if the policy language does not contain an additional insured endorsement or the party seeking additional insured or additional named insured status does not meet the criteria set forth in the policy. Interpretation of insurance contract is a question of law for the court. See, Weedo v. Stone-E-Brick, Inc., 155 N.J. Super. 474, 479 (App. Div. 1977). Courts in New Jersey strive to apply the plain meaning of the policy. By endorsement this may be limited to claims brought against the additional insured arising out of the work of the named insured. An additional named insured is insured to the same extent as the named insured.

Determining Primary and Non-Contributory vs. Excess Position

Policies may include language indicating that the policy will not apply if the insured is covered for the same loss by any other applicable insurance. This may serve to preclude recovery under the policy even if the other insurance is less than the amount of the ultimate loss. See, Childs v. N.J. Mfrs. Ins. Co., 199 N.J. Super. 441, 448 (App. Div. 1985). Likewise, a policy may contain language which provides that coverage under that policy is excess to the extent the other available insurance is insufficient. Id. These types of clauses differ from the traditional excess clause in that they essentially contain an anti-stacking component. Other polices provide for pro rata exhaustion of policies. Still others provide that language making that policy excess over any other insurance. See, Jeffrey M. Brown Assocs., Inc., v. Interstate Fire & Cas. Co., 414 N.J. Super. 106 (App. Div. 2010).
AI carrier’s rights to reimbursement for defense expenses from other, co-primary carriers

Please see above.

Insureds Right to Independent Counsel and Consequences of Rejecting a Defense

Reservation of Rights

In New Jersey where it is unclear if the claim is covered under the policy where the insured might be prejudiced by the insurer conducting the defense, the insured may have a duty of reimbursement. See, Burd v. Sussex Mut. Ins. Co., 56 N.J. 383. Whether the insurer has a duty to defend is typically determined under the “four-corners” test wherein the Complaint is read together alongside the policy. See, Danek v. Hommer, 28 N.J. Super. 68, 77 (App. Div. 1953).

The insurer may issue a reservation of rights letter wherein it agrees to defend pursuant to reservation of all of its rights including to subsequently disclaim coverage. If the insured objects and hires its own counsel same should typically be with the approval of the insurer. See, Dunne v. Fireman’s Fund Am. Ins. Co., 69 N.J. 244.

The New York Court of Appeals has held that an insurer which breaches its duty to defend does not waive coverage defenses applicable to indemnification of an insured’s settlement. K2 Inv. Group, LLC v. American Guar. & Liab. Ins. Co., 2014 N.Y. LEXIS 201 (N.Y. Feb. 18, 2014).

Coverage Defenses

Late Notice

Most policies provided one form or another that the insured must notify the insurer of a claim within a reasonable period of time. Notice is a condition precedent to an insurer’s duty to defend. Failure to provide notice within a reasonable time will not automatically bar coverage. Rather, New Jersey courts have implemented a two-part standard in order for an insurer to succeed in a late notice defense. The insurer must establish that the insured breached the notice provision in the policy and that as a result the insurer has suffered “appreciable prejudice.” The court in Cooper v. Gov’t Employee Ins. Co., 51 N.J. 86, 94 (1968) noted this is not to belittle the need for notice of an accident, but rather to put the subject in perspective. Thus viewed, it becomes unreasonable to read the provision unrealistically or finds that the carrier may forfeit the coverage, even though there is no likelihood that it was prejudiced by the breach. To do so would be unfair to insureds. It would also disserve the public interest, for insurance is an instrument of a social policy that the victims of negligence be compensated. To that end, companies are franchised to sell coverage. We should therefore be mindful also the victims of accidental events in deciding whether a forfeiture should be upheld. Id. The insurer bears the burden of proof on a late notice defense. Allstate Ins. Co. v. Grillon, 105 N.J. Super. 254, 260 (App. Div. 1969). There are also obligations to excess and re-insurers. The appreciable prejudice doctrine does not apply to claims made policies such as those which may apply to architects and engineer claims. A loss must still be reported within the policy period.

Lack of an Occurrence

Please see above with respect to definition of an occurrence.

Choice of Law (Forum Selection Clauses)

Jurisdiction having the most significant relationship to the parties and the transaction will typically control. Choice of law in the context of multiple insurers or even a single insurer with multiple claims in multiple jurisdictions cannot be oversimplified. In New Jersey, the general rule, however, is that choice of law issues are typically interpreted based upon the place of contract. See, State Farm Mut. Auto Ins. Co. v. Estate of Simmons, 84 N.J. 28, 37 (1980).

Targeted Tenders

New Jersey does not allow an insured to simply select the policy or specific policy which it wishes to exhaust first. To the extent an occurrence extends over multiple-policy period, New Jersey follows the continuous trigger theory. See, Polarome Intern. Inc. v. Greenwich Ins. Co., 404 N.J. Super. 241 (App. Div. 2008). Likewise, insurance policies typically apply in a pro rata fashion. See, Owens-Illinois, Inc. v. United Insurance Co., 264 N.J. Super. 460 (App. Div. 1993); Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312 (1997).

Consent Judgments

There can be no claim for contribution absent a judgment. However, see the reference to the entire controversy doctrine above. There can be no direct claim against an insurer in connection with a third-party claim absent a judgment. No party may pursue the insurer for the insured’s rights absent an assignment.

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