A Capehart Scatchard Blog

Developer’s Commercial Liability Policy Covers Consequential Damages of Subcontractor’s Work

By on August 7, 2015 in Blog with 1 Comment

An issue that often arises in claims involving a construction project is the scope of coverage for alleged defective work of the contractor or a subcontractor. In the reported decision of Cypress Point Condo Ass’n v. Adria Towers, LLC, 2015 N.J. Super. LEXIS 114 (App. Div. July 9, 2015), the Appellate Division ruled that the consequential damages of the subcontractor of the developer was potentially covered under the developer’s insurance policy.

In Cypress Point, the plaintiff condominium association brought suit against the developer, its insurance companies, and various subcontractors. It claimed that there should be insurance coverage under the developer’s policies for the damages caused by the subcontractor’s defective work.

The question on appeal is whether consequential damages to the common areas of the condominium complex and to the unit owners’ property, caused by the subcontractors’ defective work, constitute “property damage” and an “occurrence” under the policy. The plaintiff alleged that the subcontractors failed to properly install the roof, flashing, gutters and leaders, brick and EIFS facade, windows, doors, and sealant. This faulty workmanship amounted to what has typically been considered in the construction industry as defective work, not covered by policies. However, the paintiff has not argued that the replacement costs constitute “property damage” and an “occurrence” under the policy.

But, the faulty workmanship also caused consequential damages to the “common areas and unit owners’ property [including] damage to steel supports, exterior sheathing and interior sheathing and sheetrock, insulation and other interior areas of the building, both visible and latent[.]” Some unit owners experienced “water infiltration at the interior window jambs and sills[,]” and “roof leaks.” Other unit owners “experienced significant damage to the interior of their units, including exterior wall sheathing, wall cavity insulation, insulation sheetrock, wall finishes, wood flooring, and trim.”

The court pointed out that there was clearly property damage in that the damages constituted physical injury to tangible property. The interior strucutes were alleged to have been damaged by water infiltration from the fualty workmanship. Further, here was an occurrence because the insruers do not reasonably contend that the subcontractors expected or intended for their faulty work to

As to whether there exists “property damage,” the consequential damages clearly constitute “physical injury to tangible property.” The faulty workmanship damaged “the common areas and unit owners’ property[.]” The interior structures, including the drywall, insulation, wall finishes, and wood flooring, were damaged by water infiltration from the faulty workmanship. As a result, the consequential damages constitute “property damage” as defined under the policy.

As to whether there exists an “occurrence,” the consequential damages amount to an unexpected and unintended “continuous or repeated exposure to substantially the same general harmful conditions.” The insurers do not contend, and we cannot reasonably believe, that the subcontractors [*10]  either expected or intended for their faulty workmanship to cause “physical injury to tangible property.” Thus, the consequential damages constitute an “occurrence” as defined in the policy.

The court found a difference for coverage purposes for the defective work of a subcontractor versus a contractor.

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About the Author

About the Author:

Ms. Ramos is an Executive Committee Member and Co-Chair of the Litigation Department at Capehart Scatchard, P.A. located in Mount Laurel, New Jersey. She is an experienced litigator with over 25 years experience handling diverse matters. Practice areas include tort defense, business litigation, estate litigation, tort claims and civil rights defense, construction litigation, insurance coverage, employment litigation, shareholder disputes, and general litigation.

For the years 2020 and 2021, Ms. Ramos was selected for inclusion in The Best Lawyers in America© in the practice area of Litigation - Insurance. The attorneys on this list are selected based upon the consensus opinion of leading lawyers about the professional abilities of their colleagues within the same geographical area and legal practice area. A complete description of The Best Lawyers in America© methodology can be viewed via their website at: https://www.bestlawyers.com/methodology.

In 2021, Capehart Scatchard and Ms. Ramos received the “Best Law Firm” ranking in the area of Litigation – Insurance (Metro, Tier 3) published by U.S. News & World Report and Best Lawyers®. Law firms included on the list are recognized for professional excellence with consistently impressive ratings from clients and peers. To be eligible for a ranking, a firm must have at least one attorney who has been included in the current edition of Best Lawyers in America, which recognizes the top five percent of practicing lawyers in the United States. Betsy Ramos (Litigation – Insurance) was recognized for this prestigious award in the 2021 edition. For a description of the “Best Law Firm” selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

“Best Law Firms” is published by Best Lawyers in partnership with U.S. News & World Report. For a description of the selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

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There is 1 Brilliant Comment

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  1. Richard Ford says:

    Thanks for sharing information on commercial covers.It helps me a lot.

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