Expanded Insurance Coverage for Claims of Faulty Workmanship
Until now, many New Jersey developers and contractors sued for construction defects in newly-constructed buildings have been unable to take advantage of insurance policies that they expected to provide insurance coverage against such claims. Insurance carriers have routinely refused to provide such developers and contractors with a legal defense to such claims, and refused to pay for any settlements or judgments for such claims, relying upon a policy exclusion for faulty workmanship.
However, in a July 9, 2015 decision in Cypress Point Condominium Association, Inc. v. Adria Towers, L.L.C.,[1] the Appellate Division of the N.J. Superior Court expanded commercial general liability (“CGL”) insurance coverage to developers and contractors whose subcontractors’ faulty or defective work have caused property damage. Previously, insurance carriers had relied on the N.J. Supreme Court’s decision in Weedo v. Stone-E-Brick, Inc.[2] and its progeny to deny claims that property damages caused by faulty or defective construction were covered as an “occurrence” or “property damage” under the standard form of the CGL policies issued to developers and contractors.
In Cypress Point, a condominium association sought coverage under the developer/ general contractor’s insurance policy for damages caused by the work for the subcontractors hired by the general contractor, which subcontractors performed all of the physical construction. The condominium association complained that the subcontractors’ improper installation of the roof, flashing, gutters, leaders, facade, windows, doors and sealant on the building caused damage to steel supports, exterior and interior sheathing, sheetrock, insulation, wall finishes, flooring, and trim, and that it lead to water infiltration from windows and from the roof.
Without directly overruling the Weedo decision, in Cypress Point the Appellate Division distinguished the Weedo line of cases, to hold that unintended and unexpected damages that are caused by a subcontractor’s, and not the insured’s, defective work can constitute “property damage” and an “occurrence,” triggering coverage under the standard CGL policies. The Appellate Division thus recognized that when a subcontractor’s improper work leads to water intrusion into a home or condominium, the damage caused by that water intrusion to sheetrock, insulation, finishes floors and other elements not installed by that subcontractor, may now be covered under a standard CGL policy. As a result, the Court remanded the case to the trial court for a determination as to whether the insurance carrier was required to cover the cost of repairing the building.
Analysis of New Insurance Law
Previously, developers and contractors who hired subcontractors to perform the physical construction were left without coverage when their subcontractors failed to perform work as directed, and such faulty work lead to issues such as water intrusion that damaged the building. In such cases developers and contractors were then expected to pay their own defense costs even when they had already paid high premiums for liability policies. Moreover, when contractors and developers went out of business before any claims were made by homeowners, such homeowners were left without any potential recovery. Even though the standard CGL policies were revised in 1986 to expand coverage where property damage was caused by a subcontractor, insurance carriers continued to rely on the Weedo cases to deny any coverage if the claimed damage was related in any way to allegedly faulty construction. Since then, many other states have modernized their law in light of the new CGL policy format, and courts in other states have expressly rejected Weedo’s interpretation limiting the scope of insurance coverage. These courts have recognized that when a contractor or developer purchases a CGL policy for a construction project, it expects coverage to be available when the act of a third party, such as a subcontractor, causes damage to the building or home.
Within two weeks of the Cypress Point decision, a different 3-judge panel of the Appellate Division of the New Jersey Superior Court adopted the Cypress Point holding in two other cases- Belmont Condominium Association, Inc. v. Arrowpoint Capital Corp.[3] and Bob Meyer Communities, Inc. v. James R. Slim Plastering, Inc.[4] In each case, the Court allowed the plaintiffs to proceed past the summary judgment stage to seek coverage from the developer or general contractor’s CGL policies for the consequential damage caused by water infiltration due to the faulty work of their subcontractors.
These recent Appellate Court decisions will now allow more developers and contractors to get over the initial hurdle of showing that they are entitled to insurance coverage, requiring the insurance carriers to defend them and reimburse them for damages for a subcontractor’s faulty workmanship.
New Jersey Construction Litigation Lawyers Help Developers and Contractors Pursue Insurance Coverage for the Faulty Work of their Subcontractors
New Jersey construction litigation lawyers at Michelman & Bricker help developers and contractors in liability insurance coverage matters. Our construction litigation attorneys review liability policies in detail and negotiate with insurance companies to help their clients obtain insurance coverage. Our attorneys are currently defending clients against claims of defective construction and are working aggressively to obtain insurance coverage for such claims. Contact us for advice on how the Cypress Point decision affects your claims for liability coverage. Our firm has locations in Cherry Hill, New Jersey; Philadelphia, Pennsylvania and Longmeadow, Massachusetts. Our lawyers also professionally represent clients along the East Coast and in the Caribbean. Call us today at 215-557-9440 or complete an online inquiry for a consultation.
[1] __ N.J. Super. ___ (App Div. 2015).
[2] 81 N.J. 233 (1979).
[3] No. A-4187-12T4, 2015 N.J. Super Unpub. LEXIS 1749 (App Div. July 21, 2015).
[4] No. A-5581-12T1, 2015 N.J. Super Unpub. LEXIS 1754 (App Div. July 21, 2015).