Legal Updates for Coverage and Bad Faith - Special Alert

Edited by David D. Blake, Esq.

NJ Appellate Court rules defective construction can be an  occurrence

On July 9, 2015 the New Jersey Appellate Division made a significant ruling that affects coverage afforded to general contractors under a commercial general liability policy. Cypress Point Condo Association v. ADRIA Towers, LLC et al, 2015 N.J. Super LEXIS 114 (App. Div. 2015). The case involves a claim for coverage brought by a general contractor against its liability insurance company for defense and indemnification related to a construction defect suit filed by a condominium association. The general contractor/developer argued it was entitled to coverage because a subcontractors defective workmanship, and not its own, caused consequential damage to common elements and unit owner property. The contractor argued that the consequential damage was "property damage" and an "occurrence" under the policy.  In breaking with nearly 35 years of law which holds that defective workmanship is not an "occurrence" the Cypress court held that there was an occurrence. The court cited the subcontractors exception to the "your work" exclusion in the standard ISO liability form and ruled that the cases relied upon by the insurers involved the pre-1986 ISO form. The Cypress court held that the insurers could still rely upon other applicable exclusions, if any, but the decision potentially abolishes what has been a complete defense.