August 6, 2015 by Denise Ricci Uncategorized 0 comments
"Property Damage" Caused by an "Occurrence" Shaking Things Up in CD Litigation (NJ)The New Jersey Appellate Division has issued some recent coverage decisions in the context of construction defect claims pursued against a general contractor that have caused some stir. In the published decision, Cypress Point Condominium Association, Inc. v. Adria Towers, LLC, the court expressed the opinion that where consequential damages are involved, “property damage” constitutes an “occurrence” within the definitions of the standard ISO coverage form. The court reasoned that consequential damages to materials are unexpected and unintended from the subcontractor’s standpoint and thus meet the definitions of these two terms. The core issue in Cypress Point was whether a general contractor would have coverage for damages proximately caused by a subcontractor’s work. In Pennsylvania National Mutual Casualty Insurance Company v. Parkshore Development Corporation, 403 Fed.Appx. 770, 2010 WL 5027147 (C.A.3 (N.J.), the Third Circuit suggested that the entire project was the general contractor’s work and this had significant bearing on the court’s decision that there must be damage to something other than the project itself to have a covered “occurrence.” The Cypress Point Court found otherwise with respect to a general contractor’s scope of work and concluded that consequential damages are an “occurrence” and “property damage” per the terms of the policy. Although the Cypress Point court held that the consequential damages are “property damage” and an “occurrence,” it pointed out that its decision did not resolve all coverage issues and left open whether exclusions might apply. For example, this decision does not impact coverage with respect to property damage that involves only replacement costs flowing from a business risk. Thus, the decision does not address whether the policy would provide coverage for the cost of correcting the subcontractor’s work itself. In this regard, this appellate decision acknowledged the New Jersey Supreme Court decision of Weedo v. Stone-E-Brick, Inc., 81 N.J. 233 (1979) which found no coverage for replacement of an insured’s defective work product. On the other hand, the Cypress Point court pointed out cases where coverage was found for consequential damages flowing from defective work. Significantly, the Cypress Point court did not address the issue of when the claimed consequential damages occurred in light of the policy period. Thus, it did not touch upon the decision in Aetna Casualty & Surety Co. v. Ply Gem Industries, Inc., 343 N.J.Super. 430 (App.Div. 2001) that held that there must be proof that consequential damages occurred during the policy period. Since the Cypress Point decision was rendered on July 9, 2015, a second panel of appellate judges followed suit with two unpublished opinions in Bellmont Condominium Association v. Arrowpoint Capital Corporation and Bob Meyer Communities Inc v James R Slim Plastering Inc. on July 21, 2015. Faced with similar coverage claims, this panel cited the Cypress Point decision and ruled in both cases that consequential damages caused by a subcontractor’s faulty workmanship constituted “property damage” and an “occurrence” under the CGL policy. However, this panel of judges found that this issue was not overall dispositive of the coverage issues in either case. The court specifically noted that there remained questions about whether the property damage occurred during the policy period and whether exclusions applied. The cases effectively resolve the question of whether consequential damages to work or products other than the insured’s own work may constitute “property damage” and an “occurrence” per the ISO form definitions. However, they do not resolve whether a general contractor is covered for a particular claim. For more information contact Denise Fontana Ricci at firstname.lastname@example.org.