Yes, a municipality may be named in a lawsuit just as any person might be named. In fact municipalites are sued all the time for all sorts of reasons. However, when it comes to suing a municipality for damges due to an injury claimed to have been caused by the negligence of the municipality, many states have laws called Tort Claims Acts, or something similar. These acts usually require that a lawsuit on a tort may not be filed unless the municipality is given prior notice within a short period of time. In NJ it is 90 days. If that notice is not given within 90 days of the date of the occurrence of the accident, the right to sue will probably be lost. This gives the municipality time to review and perhaps settle the claim before a lawsuit is filed. If a claimant does not receive a satisfactory response, then at the end of the 90 day period he can sue the municipality.
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