In Cypress Point Condo. Ass’n, Inc. v. Adria Towers, L.L.C., 076348, 2016 WL 4131662, at *8 (N.J. Aug. 4, 2016), a condominium association sued its general contractor for rainwater damage to the condominium complex, after the project was completed, which was allegedly the result of defective work performed by subcontractors. The condominium association also sued the developer’s CGL insurers, seeking a declaration that claims against the developer were covered by the policies. The trial court granted summary judgment to the insurers, finding that there was no “property damage” or “occurrence,” as defined and required by the policies, to trigger coverage. The condominium association appealed, and the Appellate Division reversed, concluding that “consequential damages caused by the subcontractors’ defective work constitute[d] ‘property damage’ and an ‘occurrence’ under the polic[ies].”
The Supreme Court of New Jersey granted review and addressed, in part, whether “consequential” water damage resulting from the defective work of a subcontractor falls within the general contractor’s CGL policy’s definition of an “occurrence.” The Court noted the rule in Weedo v. Stone-E-Brick, Inc., 405 A.2d 788, 789 (N.J. 1979) that a CGL policy does not indemnify the insured when the damages claimed are the cost of correcting the alleged defective work itself. However, the Court held that Weedo does not foreclose coverage of consequential damages caused by the alleged defective work.
The policy at issue (the 1986 ISO standard form CGL policy) defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Though the term “accident” was not defined in the policy, the Supreme Court construed the term “to encompass unintended and unexpected harm caused by negligent conduct.” The Court noted that no party contended that the subcontractors intentionally performed substandard work that led to the water damage. After examining the traditional definitions of accident, the Court held that “consequential harm caused by negligent work is an ‘accident,'” and therefore an “occurrence” under the policy.
The New Jersey Supreme Court’s analysis and opinion in Cypress Point is a reminder for policy holders of the importance of correctly characterizing the loss sought to be covered (e.g., the cost of replacing faulty work vs. damages to other property caused by such faulty work). Experienced coverage counsel can help an insured recognize and prepare for the nuances in applying the language of the policy to the insured’s specific loss.