The New Jersey Legislature has entered the ongoing national debate about whether faulty construction work is considered an “occurrence” under general liability insurance policies. Introduced on November 25, 2013, A. 4510 seeks to alter the commercial general liability (CGL) definition of “occurrence” to encompass accidental property damage resulting from construction professionals’ faulty workmanship. The bill also requires CGL policies to contain a definition of “occurrence” in order to provide more certainty with respect to coverage for faulty workmanship.
The current definition of “occurrence” in standard-form CGL policies is “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The bill would expand that definition to expressly include “property damage or bodily injury resulting from faulty workmanship.” The act, which would apply to both admitted and surplus lines insurers, expressly states that application of CGL policy exclusions would not be restricted or limited by the change to the “occurrence” definition.
The legislation takes aim at a line of New Jersey cases, dating back to the Supreme Court’s seminal decision in Weedo v. Stone-E-Brick, 81 N.J. 233 (1979), in which courts largely have supported insurers’ arguments that a contractor’s defective work on a construction project is not accidental and, therefore, cannot be considered an “occurrence.” Courts across the country have differed on whether a contractor’s faulty workmanship can be considered accidental for coverage purposes.
Arkansas, Colorado, Hawaii and South Carolina have requirements similar to those that are part of the New Jersey bill, which mirrors the wording of the Arkansas statute, ACA 23-79-155 (2011). However, those laws have not been without controversy as questions about constitutionality, retroactivity and ambiguity have resulted in litigation. While New Jersey’s legislation states that the act shall take effect on the 90th day following enactment, it does not address whether it would apply to existing policies or only those issued after the effective date.
If the bill passes the Legislature and is approved by Governor Chris Christie, insurers will have to reassess their underwriting guidelines, claims handling processes and premiums charged.