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Builders Expect to Build Shoddy Condo Buildings

By Mark M. Wiechnik

Most people who have purchased a new home, condo or townhouse in New Jersey at some point have suspected that the builder of that home knew that the construction was not done properly and that the home would have significant problems. Defects ranging from improperly installed roofs, faulty plumbing and electrical and leaky stucco are far too common, and give owners of those homes the sense that the builder had to know, on some level, that the work wasn't being done correctly. Those suspicious have been confirmed in a recent court decision. The South Carolina Supreme Court, in Crossman v. Harleysville Ins., recently determined that faulty workmanship which results in property damage is no accident. The court found that in most cases, property damage is not only foreseeable by most builders, but is generally expected and sometimes intended by builders who are more concerned with finishing on time or increasing their margin. The decision related to whether or not the builder's insurance policy covered the homeowner's damages. The court found generally that the policy covered accidents, and these defects were not accidental, and were, therefore, not covered by the insurance policy.
 

This decision, while insulting to builders, is potentially a disaster for condominiums and homeowners associations that depend upon the developer or sponsor's insurance policies to pay for the damage caused by shoddy construction. In many cases, developers create a separate company for each development they build. These companies typically have no assets, employees, bank accounts or income, which leaves insurance policies as the only potential source of recovery for most associations. The court's finding makes it much more difficult to recover from these policies, and could leave an association with huge damages no way to pay for the costly repairs that they must undertake. Ironically, in this instance not only does the insolvent builder misrepresent the quality of the construction, it further hurts its customers and associations by building in such a manner that it jeopardizes insurance coverage which is the only means by which the association could be reimbursed for its damages.

Full post as published by New Jersey Law Blog on March 29, 2011 (boomark / email).