Insurers, generally, do not cover faulty workmanship. But, for years, courts across the country have grappled with the issue of whether policies cover consequential damages resulting from a subcontractor’s faulty workmanship.  The New Jersey Supreme Court will address the issue when it hears Cypress Point v. Adria.

In Cypress, subcontractors failed to properly install a number of items, including the roof, flashing, gutters and leaders, brick and EIFS façade, windows, doors, and sealants.  Predictably, that faulty workmanship caused damage to other areas of the condominium, such as steel supports, sheathing, and sheetrock.

The condominium owner then sought coverage under its general contractors’ commercial general liability policy, arguing that the consequential damages resulting from faulty workmanship constituted property damage resulting from an occurrence.  The trial court disagreed, ruling that there was no “property damage” or an “occurrence” under the policy.

On appeal, the Appellate Division took a literal approach to the policy’s definition of “property damage.”  Because that definition covered “physical injury to tangible property,” the Appellate Division held that there were allegations of “property damage.” And, because the subcontractors, to be sure, did not expect or intend their faulty workmanship to cause property damage, the Appellate Division also held that there was an occurrence.

The Appellate Division took care in explaining the limitation of its holding.  First, it recognized that its holding applied only to consequential damages resulting from the faulty workmanship, not the cost of replacing the defective work itself.  Second, the court recognized that its holding was limited to the definitions of “property damage” and “occurrence.”  The court explicitly noted its decision did not apply to any policy exclusions that may apply.

As it currently stands, in New Jersey, consequential damages arising from faulty workmanship constitute property damages arising from an occurrence as those terms are understood in the CGL space.

But the grant of certification to New Jersey’s top court signals that the issue of consequential damages arising from faulty workmanship is still a matter of consequence. Watch this space for the outcome of this important issue.

Thanks to Mike Gauvin for his contribution to this post.

For more information, please email Dennis Wade at .