NJ Supreme Court Rules Faulty Workmanship is Covered under Commercial General Liability Policies
The Supreme Court of New Jersey recently held that a subcontractor’s faulty workmanship is covered under a developer’s commercial general liability policies (CGL). The decision in Cypress Point Condominium Association v. Adria Towers provides much-needed clarity regarding one of the most common types of insurance disputes involving construction defects.
The Facts of the Case
The insurance dispute centered on the construction of Cypress Point, a luxury condominium complex in Hoboken. Co. Defendants Adria Towers, LLC, Metro Homes, LLC, and Commerce Construction Management, LLC (collectively, the developer) served as the project’s developer and general contractor, and subcontractors carried out most of the work. During construction, the developer obtained four general liability policies from Evanston Insurance Company and three from Crum & Forster Specialty Insurance Company .
After the complex was completed, several residents began experiencing problems, such as roof leaks and water infiltration around windows in units and common areas. Plaintiff Cypress Point Condominium Association sued the developer and several subcontractors, alleging faulty workmanship during construction and claiming various consequential damages. The central question in the lawsuit was whether the Association’s claims were covered by the insurers’ general liability CGL policies.
The Commercial General Liability Policies
The policies were all modeled after the 1986 version of the standard form CGL policy promulgated by the Insurance Services Office, Inc. (ISO). They provided coverage for “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ . . . caused by an ‘occurrence’ that takes place in the ‘coverage territory’ . . . [and] . . . occurs during the policy period.”Under the policies, “property damage” was defined to include “[p]hysical injury to tangible property including all resulting loss of use of that property.” Meanwhile, an “occurrence” was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The policies also contained an exclusion, for “Damage to Your Work” (the “your work” exclusion), which eliminated coverage for “‘[p]roperty damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard.’” Notably, the exclusion stated it “does not apply if the damaged work or the work out of which the damage arises was performed on [the insured’s] behalf by a subcontractor.”
The Court’s Decision
The New Jersey Supreme Court held that the CGL carriers must provide coverage. “The consequential damage caused by the subcontractors’ faulty workmanship constitutes ‘property damage’ and the event resulting in the damage … is an ‘occurrence’ under the plain language of the commercial general liability policies at issue here,” Justice Lee Solomon wrote.
In reaching its decision, the court noted that the seminal New Jersey insurance cases addressing whether construction defects are covered under CGL policies construed the 1973 ISO standard form CGL policy and not the 1986 version. It also highlighted that courts across the country have held that faulty workmanship constitutes an “occurrence” based on the exception to the “Your Work” exclusion in the 1986 version.The New Jersey Supreme Court followed the trend in holding that the post-construction consequential damages, which resulted in loss of use of the affected areas by residents, were covered “property damage” under the terms of the policies. As Justice Solomon explained, “because the result of the subcontractors’ faulty workmanship – consequential water damage to the completed and non-defective portions of Cypress Point – was an “accident,” it is an “occurrence” under the policies and is provided an initial grant of coverage.”
The court next turned to the relevant exclusions under the policies, as well as their exceptions. It concluded that while the 1986 “your work” provision eliminated some coverage for water damage to the completed sections of Cypress Point, “an exception to this exclusion, which was added to the 1986 ISO standard form CGL policy, narrowed the exclusion by expressly declaring that it does not apply if the damaged work or work out of which the damage arises was performed by a subcontractor.”
Are you still unsure about these commercial general liability policies? Would you like to discuss the matter further? If so, please contact me, Charles Yuen, at 201-806-3364.
Does Your Homeowners Insurance Provide Adequate Coverage?
Your home is likely your greatest asset, which is why it is so important to adequately protect it. Homeowners insurance protects you from the financial costs of unforeseen losses, such as theft, fire, and natural disasters, by helping you rebuild and replace possessions that were lost While the definition of “adequate” coverage depends upon a […]
Understanding the Importance of a Non-Contingent Offer
Making a non-contingent offer can dramatically increase your chances of securing a real estate transaction, particularly in competitive markets like New York City. However, buyers should understand that waiving contingencies, including those related to financing, or appraisals, also comes with significant risks. Determining your best strategy requires careful analysis of the property, the market, and […]
Fred D. Zemel Appointed Chair of Strategic Planning at Scarinci & Hollenbeck, LLC
Business Transactional Attorney Zemel to Spearhead Strategic Initiatives for Continued Growth and Innovation Little Falls, NJ – February 21, 2025 – Scarinci & Hollenbeck, LLC is pleased to announce that Partner Fred D. Zemel has been named Chair of the firm’s Strategic Planning Committee. In this role, Mr. Zemel will lead the committee in identifying, […]
Novation Agreement Process: Step-by-Step Guide for Businesses
Big changes sometimes occur during the life cycle of a contract. Cancelling a contract outright can be bad for your reputation and your bottom line. Businesses need to know how to best address a change in circumstances, while also protecting their legal rights. One option is to transfer the “benefits and the burdens” of a […]
What Is a Trade Secret? Key Elements and Legal Protections Explained
What is a trade secret and why you you protect them? Technology has made trade secret theft even easier and more prevalent. In fact, businesses lose billions of dollars every year due to trade secret theft committed by employees, competitors, and even foreign governments. But what is a trade secret? And how do you protect […]
What Is Title Insurance? Safeguarding Against Title Defects
If you are considering the purchase of a property, you may wonder — what is title insurance, do I need it, and why do I need it? Even seasoned property owners may question if the added expense and extra paperwork is really necessary, especially considering that people and entities insured by title insurance make fewer […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Subcontractor’s Faulty Workmanship Covered By Commercial General Liability Policies
Author: Scarinci Hollenbeck, LLC
NJ Supreme Court Rules Faulty Workmanship is Covered under Commercial General Liability Policies
The Supreme Court of New Jersey recently held that a subcontractor’s faulty workmanship is covered under a developer’s commercial general liability policies (CGL). The decision in Cypress Point Condominium Association v. Adria Towers provides much-needed clarity regarding one of the most common types of insurance disputes involving construction defects.
The Facts of the Case
The insurance dispute centered on the construction of Cypress Point, a luxury condominium complex in Hoboken. Co. Defendants Adria Towers, LLC, Metro Homes, LLC, and Commerce Construction Management, LLC (collectively, the developer) served as the project’s developer and general contractor, and subcontractors carried out most of the work. During construction, the developer obtained four general liability policies from Evanston Insurance Company and three from Crum & Forster Specialty Insurance Company .
After the complex was completed, several residents began experiencing problems, such as roof leaks and water infiltration around windows in units and common areas. Plaintiff Cypress Point Condominium Association sued the developer and several subcontractors, alleging faulty workmanship during construction and claiming various consequential damages. The central question in the lawsuit was whether the Association’s claims were covered by the insurers’ general liability CGL policies.
The Commercial General Liability Policies
The policies were all modeled after the 1986 version of the standard form CGL policy promulgated by the Insurance Services Office, Inc. (ISO). They provided coverage for “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ . . . caused by an ‘occurrence’ that takes place in the ‘coverage territory’ . . . [and] . . . occurs during the policy period.”Under the policies, “property damage” was defined to include “[p]hysical injury to tangible property including all resulting loss of use of that property.” Meanwhile, an “occurrence” was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The policies also contained an exclusion, for “Damage to Your Work” (the “your work” exclusion), which eliminated coverage for “‘[p]roperty damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard.’” Notably, the exclusion stated it “does not apply if the damaged work or the work out of which the damage arises was performed on [the insured’s] behalf by a subcontractor.”
The Court’s Decision
The New Jersey Supreme Court held that the CGL carriers must provide coverage. “The consequential damage caused by the subcontractors’ faulty workmanship constitutes ‘property damage’ and the event resulting in the damage … is an ‘occurrence’ under the plain language of the commercial general liability policies at issue here,” Justice Lee Solomon wrote.
In reaching its decision, the court noted that the seminal New Jersey insurance cases addressing whether construction defects are covered under CGL policies construed the 1973 ISO standard form CGL policy and not the 1986 version. It also highlighted that courts across the country have held that faulty workmanship constitutes an “occurrence” based on the exception to the “Your Work” exclusion in the 1986 version.The New Jersey Supreme Court followed the trend in holding that the post-construction consequential damages, which resulted in loss of use of the affected areas by residents, were covered “property damage” under the terms of the policies. As Justice Solomon explained, “because the result of the subcontractors’ faulty workmanship – consequential water damage to the completed and non-defective portions of Cypress Point – was an “accident,” it is an “occurrence” under the policies and is provided an initial grant of coverage.”
The court next turned to the relevant exclusions under the policies, as well as their exceptions. It concluded that while the 1986 “your work” provision eliminated some coverage for water damage to the completed sections of Cypress Point, “an exception to this exclusion, which was added to the 1986 ISO standard form CGL policy, narrowed the exclusion by expressly declaring that it does not apply if the damaged work or work out of which the damage arises was performed by a subcontractor.”
Are you still unsure about these commercial general liability policies? Would you like to discuss the matter further? If so, please contact me, Charles Yuen, at 201-806-3364.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
