Appellate Division Affirms Judgment that Homeowner Association is Liable for Contractor’s Attorneys’ Fees and Costs

In Xanadu at Wall Condo. Ass’n, Inc. v. Amboy Bank, et al., O’Toole Scrivo, LLC achieved a rare result at the New Jersey Appellate Division, namely, affirming that a homeowner association can be responsible for the attorneys’ fees of a contractor through the assumption of indemnity obligations.

Xanadu at Wall Condominium Association, Inc. (“Xanadu”) is the homeowner association for Xanadu at Wall Condominium (“Community”). Xanadu hired All County Exteriors (“ACE”) to repair certain balconies, and ACE subcontracted the work to Benchmark Construction (“Benchmark”). The agreements between ACE and Benchmark (“Contracts”) required Benchmark to indemnify ACE from any liability pertaining to Benchmark’s work unless ACE was solely negligent.

Xanadu filed a complaint alleging construction defects with certain balconies, naming ACE and Benchmark as defendants. Xanadu and Benchmark settled, and Xanadu agreed to assume Benchmark’s liabilities to ACE.

ACE, represented by O’Toole Scrivo, LLC, obtained summary judgment dismissing the claims because ACE did not perform repairs to the damaged balconies. ACE moved for indemnification based on Xanadu’s assumption of Benchmark’s liabilities to ACE. ACE prevailed, and Xanadu was ordered to pay attorneys’ fees. Xanadu appealed.

The Appellate Division affirmed the dismissal of the claims because there was no evidence that ACE performed repairs on the damaged balconies. The panel also rejected Xanadu’s argument that the indemnity provisions in the Contracts were ambiguous and unenforceable. Notably, the Appellate Division rejected Xanadu’s reliance on Englert v. Home Depot, 389 N.J. Super. 44, 54 (App. Div. 2006). In Englert, the court found the indemnity clause ambiguous, which stated that the contractor would be indemnified from any loss "to the extent caused" by a negligent act of the subcontractor, "regardless of whether it is caused in part by a party indemnified."

By contrast, the Contracts contained the unambiguous trigger that ACE would be indemnified for claims arising from Benchmark’s work, except for claims arising through ACE’s sole negligence. The grant of summary judgment to ACE ruled out the possibility that ACE was solely negligent, and ACE therefore was entitled to indemnity. In short, when Xanadu assumed Benchmark’s responsibilities to ACE, it became responsible to pay ACE’s attorneys’ fees.

Xanadu at Wall is a rare example of a homeowner association being exposed to liability to a contractor. As a possible consequence of this decision, we anticipate that homeowner associations will be less likely to settle with subcontractors that have indemnity obligations to contractors without first obtaining indemnity waivers from those upstream contractors. This case also illustrates the value of obtaining copies of settlement agreements between homeowner associations and subcontractors.

O’Toole Scrivo, LLC is adept at achieving results in construction defect and indemnity lawsuits. Managing Partners Thomas P. Scrivo and Kevin J. O’Toole, along with Steven A. Weiner, Anthony D. Capasso, R. Brant Forrest, Peter V. Koenig and other attorneys at O’Toole Scrivo, LLC, have significant experience defending and asserting claims on behalf of developers, contractors, and subcontractors in construction defect and indemnity matters.