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New Jersey Court Clarifies the Breadth of Ongoing Operations Exclusion (NJ)

August 8, 2019

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<p style="text-align: justify;">In<em> <a href="">PJR Construction of New Jersey Inc v. Valley Forge Insurance Company</a></em>, the District of New Jersey resolved a construction defect coverage dispute in favor of the insurers, and in so doing, clarified that the scope of the Ongoing Operations Exclusion extends to an entire project, even where certain portions have indisputably been completed.</p>
<p style="text-align: justify;">Plaintiff PJR had been hired to construct a 26,250 square foot swim club for a Cambridge Real Property, a non-party to the coverage action.  More than two years into the project, Cambridge was displeased with PJR’s work and terminated them, hiring a new construction company to complete the project.  PJR sought defense and indemnity from the Defendant insurers for the resulting litigation with Cambridge.  The insurers denied coverage on the basis that the Ongoing Operations Exclusion barred coverage because the project was incomplete and still in process at the time of PJR’s termination.  The insurers also averred the Business Risk Exclusion for “Your Work” barred coverage because PJR’s work needed to be repaired and replaced.</p>
<p style="text-align: justify;">The Court acknowledged that prior to PJR’s termination, major parts of the construction project had indeed been completed including steel structures, masonry and windows, but held that the relevant inquiry of completion is as to the project as a whole.  Because the project was not finished at the time the underlying dispute arose, the Ongoing Operations Exclusion unambiguously acted to bar coverage, and summary judgment was awarded to the insurers.</p>
<p style="text-align: justify;">PJR also argued that the Subcontractor Exception to the Business Risk exclusions should apply to the Ongoing Operations exclusion, but the Court was not swayed, finding that “in New Jersey, a limitation to one exclusion cannot restrict the scope of an entirely different exclusion.”</p>
<p style="text-align: justify;">This decision is an important addendum to the <em>Weedo </em>and <em>Cypress Point II</em> line of cases in New Jersey, and provides significant benefits and certainty to insurers disclaiming under an Ongoing Operations exclusion with respect to large-scale construction projects with many divisible sub-parts.</p>
<p style="text-align: justify;">Thanks to Vivian Turetsky for her contribution to this post.  Please email <a href="">Colleen E. Hayes</a> with any questions.</p>


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