New Jersey Appeals Court

Schoolhouse Commons at Union Avenue Condominium Association v. CCTS Tax Liens I, LLC

No. A-3697-10T4.

SCHOOLHOUSE COMMONS AT UNION AVE. CONDOMINIUM ASSOCIATION, Plaintiff-Respondent,
v.
CCTS TAX LIENS I, L.L.C., Defendant/Third-Party/Plaintiff-Appellant,
v.
MATTISON RAYMOND GROUP, INC., Third-Party/Defendant-Respondent.

Superior Court of New Jersey, Appellate Division.

Argued November 28, 2011.

Decided January 13, 2012.

Adam D. Greenberg argued the cause for appellant (Honig & Greenberg, attorneys; Mr. Greenberg and Ian M. Sirota, on the briefs).

Matthew B. Wieliczko argued the cause for respondent Schoolhouse Commons at Union Ave. Condominium Association (Zeller & Wieliczko, attorneys; Mr. Wieliczko and Michael J. Huntowski, on the brief).

Michael Dolich argued the cause for respondent Mattison Raymond Group, Inc. (Bennett, Bricklin & Saltzburg, attorneys; Mr. Dolich and Nicholas A. Cummis, on the brief).

Before Judges Grall and Skillman.

NOT FOR PUBLICATION

PER CURIAM.

Plaintiff Schoolhouse Commons at Union Avenue Condominium Association is the condominium association for a fifteen-unit condominium located in a converted former school building in Pennsauken. Defendant CCTS Tax Liens is the owner of one of the units in the Schoolhouse Commons condominium building. Third-party defendant Mattison Raymond Group contracted with Schoolhouse Commons to manage the common elements of the condominium.

Schoolhouse Commons brought an action against CCTS in the Special Civil Part for the collection of unpaid condominium assessments. CCTS filed a counterclaim against Schoolhouse Commons and a third-party complaint against Mattison Raymond, which alleged that their negligence in the maintenance of a part of the common elements — specifically, a pipe located above CCTS's unit — had caused a water leak that damaged the unit, resulting in a loss of income from the unit. Based on this allegation, CCTS sought an order requiring Schoolhouse Commons and Mattison Raymond to repair the leaky pipe and also money damages. The trial court subsequently granted CCTS's motion to transfer the action from the Special Civil Part to the Law Division.

During the pendency of the action, Schoolhouse Commons repaired the leaky pipe and the damage to CCTS's unit caused by the leak. As a result, CCTS's claim for an order requiring those repairs to be made was mooted and CCTS's counterclaim and third-party complaint were limited to claims for money damages.

Schoolhouse Commons filed a motion for summary judgment with respect to both its claim for the unpaid assessments upon CCTS and CCTS's counterclaim, which the trial court granted. The court found that the total amount of unpaid assessments owed by CCTS was $3,646.76 and also awarded Schoolhouse Commons $1528 for its attorneys' fees and costs. The court dismissed CCTS's counterclaim on the ground that it was barred by a provision in the condominium association by-laws requiring condominium unit owners to obtain insurance for any damage to their units and precluding any subrogation action for such damage. Although Mattison Raymond had not moved for summary judgment, the court also dismissed the third-party complaint after CCTS acknowledged that the court's rationale for dismissal of its counterclaim would also apply to its claim against Mattison Raymond. CCTS filed a motion for reconsideration of the dismissal of its counterclaim and third-party complaint, which the court denied.

CCTS's appeal is directed solely at the trial court's conclusion that its claims against Schoolhouse Commons and Mattison Raymond for the damage to its unit are barred by the provision of the condominium association by-laws requiring unit owners to obtain property damage insurance and precluding subrogation claims.

The respective rights and responsibilities of unit owners and condominium associations are governed by the Condominium Act, N.J.S.A. 46:8B-1 to-38, the master deed creating the condominium, and the condominium association's by-laws. See Walker v. Briarwood Condo Ass'n, 426 (App. Div. 1994). The determination whether CCTS may maintain an action against Schoolhouse Commons and Mattison for the damage to its unit caused by their alleged negligent maintenance of the common elements turns on the sections of the Schoolhouse Commons by-laws regarding the parties' obligations to obtain insurance and precluding subrogation actions.

Section 16.01 of the by-laws obligates Schoolhouse Commons to maintain insurance on the "Condominium Property," which includes not only the common elements but also the individual condominium owners' units. This section provides in part:

The Association at all times shall maintain in effect the policies of insurance on the Condominium Property as set forth in this Article. The policies shall be for the benefit and protection of the Association, the Unit Owners, and any mortgagee of a Unit....

This section requires the coverage under the policy to include "water damage" to the unit but not to the unit owner's personal property. Section 16.02(g) of the by-laws provides that the policy obtained by Schoolhouse Commons shall include a waiver of subrogation rights clause:

The [required] policies shall include... [a] waiver of the insurer's right of subrogation against the Association, its officers, trustees, and employees, and against any Unit Owner, ...

Section 16.03 of the by-laws requires the unit owner to obtain insurance for personal property in the unit, which also must include a waiver of subrogation rights against Schoolhouse Commons. This section provides in pertinent part:

Unit Owners shall carry insurance for their own benefit insuring their carpeting, wallcovering, fixtures, air equipment, appliances, furniture, furnishings, and other personal property, and insuring against public liability for personal injury or property damage. All policies shall contain waivers of subrogation against the Board of Trustees, the Association, and other Unit Owners....

In Skulskie v. Ceponis, (App. Div. 2009), we upheld the validity of waiver of subrogation provisions in a condominium association's by-laws comparable to ones contained in sections 16.02 and 16.03 of the Schoolhouse Commons by-laws. The by-laws involved in Skulskie required the condominium association to maintain a property insurance policy and authorized, but did not obligate, the unit owners to obtain insurance for their personal property. Id. at 511-12. The by-laws also required any insurance policy obtained by either the condominium association or a unit owner to include a provision that the insurer waives any right of subrogation against the association or unit owners. Ibid. Notwithstanding the inclusion of this required waiver of subrogation provision in the policy obtained by a unit owner, its insurer brought a subrogation action against another unit owner who had not obtained its own policy, claiming that the damage to its insured's unit had been caused by a leak in the defendant-unit owner's plumbing. Id. at 512. We held that the waiver of subrogation provision barred the action even though the defendant-unit owner was uninsured. Id. at 512-14. In reaching this conclusion, we stated that the sections of the condominium association by-laws which required any insurance policy to include a waiver of subrogation provision, "contemplated no litigation between unit owners or between unit owners and the Association." Id. at 514.

Similarly, we conclude that the Schoolhouse Commons by-laws, which require Schoolhouse Commons to obtain insurance on the condominium property and the unit owners to obtain property damage coverage for their own personal property, and require both policies to include waiver of subrogation provisions, contemplate that there will be no litigation between unit owners and the association based on alleged damage to the condominium units or the personal property contained in them. Indeed, this conclusion is even clearer in the present case than in Skulskie because the Schoolhouse Commons' by-laws require unit owners to obtain property damage coverage on their personal property while such coverage was only optional under the by-laws involved in Skulskie.

We reject CCTS's argument that it is free to maintain a negligence action against Schoolhouse Commons because the waiver of subrogation provision contained in 16.03 of the by-laws applies only to an insurance company that pays a unit owner's property damage claim and thus does not bar a unit owner's direct claim against Schoolhouse Commons. CCTS has such a direct claim only because it failed to comply with the obligation imposed by section 16.03 to obtain insurance. CCTS cannot circumvent the scheme contemplated by the Schoolhouse Commons by-laws that property damage insurance coverage will be obtained on both condominium property and the unit owner's personal property, and that there will be no litigation over property damage between unit owners and the association, simply by failing to procure the insurance required by the by-laws.

We also reject CCTS's argument that the bar on actions against the homeowners association based on damage to a condominium unit or its contents does not foreclose this action because CCTS alleges that the property damage caused by the water leak resulted in a loss of income from its unit. As the court pointed out in Mayfair Fabrics v. Henley, 129 (Law Div. 1967), aff'd o.b., (App. Div. 1968), a party's "rights to the use of its property and to the profits therefrom are property rights, and its right to recover damages for their impairment is an element of the damages recoverable because of the direct damage to its property."

Moreover, it is irrelevant whether the damage caused by the water leak from the common elements was solely to CCTS's personal property or also to the ceiling and walls of its unit. Any damage to CCTS's personal property would have been covered by the insurance CCTS was required but failed to procure and any damage to the structure of the condominium unit would be covered by the insurance Schoolhouse Commons was required and apparently did procure. In either event, the by-laws contemplated that those policies would provide the sole source of recovery for CCTS's damages.

Affirmed.