Date: July 20, 2022Attorney: Jacqueline Greenberg Vogt

On July 18, 2022, in Crystal Point Condominium Association, Inc. v. Kinsale Insurance Company, (a-76-20) (085606), the New Jersey Supreme Court unanimously concurred with an Appellate Division decision in favor of a condominium association’s right to sue the insurer of an insolvent contractor for construction defect claims under New Jersey’s Direct Action Statute, N.J.S.A. 17:28-2 (the “statute”). The decision broadens the categories of clams which fall under the statute to specifically include the claims of the condo association in this case, where the claimants had first obtained unsatisfied judgments against the insureds. The decision rejects the argument of the insurer that the statue only applies to claims for insurance coverage for loss or damage caused by animals or motor vehicles.

However, as derivative claims, the Court ruled that the claims are subject to the terms of the policy which required arbitration, and reversed the Appellate Division decision which overruled a trial court order compelling arbitration.

Takeaway: In order to reap the benefit of the Direct Action Statute, the claimant must first show that the insured under the policy is insolvent or bankrupt, and that a judgment against it is unsatisfied. This decision is an asset to construction defect claimants unable to recover due to the inability to collect from a defunct contractor.