In a recent significant decision, the Supreme Court of New Jersey held that defective work of a subcontractor that causes consequential property damage is both an “occurrence” and “property damage” under the terms of a standard form commercial general liability (“CGL”) insurance policy. Cypress Point Condominium Assoc., Inc., v Adria Towers, L.L.C., 2016 N.J. Lexis 847 (Aug. 4, 2016). This decision is important in New Jersey and in other jurisdictions that had relied upon the influential New Jersey case, Weedo v. Stone–E–Brick, Inc., 81 N.J. 233 (1979), that had determined that such claims involved non-insured “business risks.” Despite the fact that standard insurance forms were amended after the Weedo decision to extend coverage for damages caused by the defective work of subcontractors, some courts and many insurers had continued to rely upon its “business risk” doctrine to deny defense and coverage. Such denials will be much more difficult after the Cypress Point decision, which specifically explains the Weedo decision and holds that it does not prevent coverage under the most common forms of CGL policies currently in use for damages caused by a subcontractor’s defective work.
In Cypress Point, the condominium association sued the developer/general contractor and several of its subcontractors alleging faulty workmanship during construction had caused physical damage to common elements and individual dwellings as well as loss of use. The developer/ general contractor requested its insurance carrier to defend the claims. After the carrier refused, the condominium association amended its complaint seeking a declaration that the damages it claimed were covered under the developer/general contractor’s CGL policies.
On summary judgment, the trial court ruled that the claims were not covered relying upon the Weedo decision and other New Jersey precedents. An appellate court reversed the trial court’s decision and the New Jersey Supreme Court upheld the appellate court’s decision. Both the appellate court and the New Jersey Supreme Court based their determinations on the language of the insurance policies in question which were modeled after the standard form CGL policy promulgated by the Insurance Services Office, Inc. (“ISO”).