Cypress Point Condo. Ass'n, Inc. v. Adria Towers, L.L.C.

Decision Date04 August 2016
Citation143 A.3d 273,226 N.J. 403
PartiesCYPRESS POINT CONDOMINIUM ASSOCIATION, INC., Plaintiff–Respondent, v. ADRIA TOWERS, L.L.C.; D. Loureiro Masonry Contractor ; Dean Marchetto Associates, P.C. ; Pereira Construction, L.L.C. ; American Architectural Restoration ; Metro Homes, L.L.C.; Commerce Construction Management, L.L.C.; Waterfront Management Systems, L.L.C.; NCF Glazing & Erecting, Inc. ; and MDNA Framing, Inc., Defendants, and Weather–Tite, Defendant/Third–Party Plaintiff, and Pereira Construction, L.L.C. ; and American Architectural Restoration, Third–Party Defendants, and Evanston Insurance Company, Defendant/Third–Party Plaintiff–Appellant, and National Indemnity Company, Third–Party Defendant, and Crum & Forster Specialty Insurance Company, Third–Party Defendant–Appellant.
CourtNew Jersey Supreme Court

Elliott Abrutyn argued the cause for appellant Evanston Insurance Company (Morgan Melhuish Abrutyn, attorneys; Mr. Abrutyn and Thomas G. Rantas, Livingston, on the briefs).

Gary S. Kull argued the cause for appellant Crum & Forster Specialty Insurance Company (Carroll McNulty Kull and Hardin, Kundla, McKeon & Poletto, attorneys; Mr. Kull and John S. Favate, of counsel; Mr. Kull, Mr. Favate, Denise Marra DePekary, Basking Ridge, and Arthur A. Povelones, Jr., Springfield, on the briefs).

Mark M. Wiechnik argued the cause for respondent (Ansell Grimm & Aaron, attorneys; Breanne M. DeRaps, on the letter brief).

John Randy Sawyer argued the cause for amicus curiae Community Association Institute (Stark & Stark, attorneys; Mr. Sawyer and Gene Markin, Lawrenceville, on the brief).

Timothy P. Law, Jay M. Levin, and Jill N. Priscott submitted a brief on behalf of amicus curiae United Policyholders (Reed Smith, attorneys).

John P. DiBiasi, Saddle River, submitted a brief on behalf of amici curiae Associated General Contractors of America and Associated Construction Contractors of New Jersey (Lewis & McKenna, attorneys; Patrick J. Wielinski, a member of the Texas Bar, of counsel).

Michael A. Barrese and Bethany L. Barrese submitted a brief on behalf of amicus curiae Turner Construction Company (Saxe Doernberger & Vita, attorneys; Gregory D. Podolak, a member of the Connecticut Bar, of counsel).

Carlton T. Spiller, Ellen A. Silver, and Steven B. Gladis, Iselin, submitted a brief on behalf of amici curiae National Association of Home Builders, New Jersey Builders Association, and Leading Builders of America (Greenbaum, Rowe, Smith & Davis, attorneys).

Justice SOLOMON

delivered the opinion of the Court.

In this appeal, we are called upon to determine whether rain water damage caused by a subcontractor's faulty workmanship constitutes “property damage” and an “occurrence” under a property developer's commercial general liability (“CGL”) insurance policy.1 Here, a condominium association sued its developer/general contractor for damage to the interior structure, residential units, and common areas of the condominium complex, which was allegedly the result of defective work performed by subcontractors. The condominium association also sued the developer's CGL insurers, seeking a declaration that claims against the developer were covered by the policies. The trial court granted summary judgment to the insurers, finding that there was no “property damage” or “occurrence,” as defined and required by the policies, to trigger coverage. The condominium association appealed, and the Appellate Division reversed, concluding that “consequential damages caused by the subcontractors' defective work constitute[d] ‘property damage’ and an ‘occurrence’ under the polic[ies].”

We affirm the judgment of the Appellate Division and hold that the consequential damages caused by the subcontractors' faulty workmanship constitute “property damage,” and the event resulting in that damage—water from rain flowing into the interior of the property due to the subcontractors' faulty workmanship—is an “occurrence” under the plain language of the CGL policies at issue here.

I.

We begin with a review of the pertinent facts that gave rise to the instant dispute, which arose from the construction of Cypress Point, a luxury condominium complex in Hoboken consisting of fifty-three residential units.

Construction of Cypress Point began in 2002 and was substantially completed in 2004. During construction, co-defendants Adria Towers, LLC (Adria Towers), Metro Homes, LLC (Metro Homes),2 and Commerce Construction Management, LLC (Commerce Construction)3 (collectively, “the developer”) served as the project's developer and general contractor and hired subcontractors to carry out a substantial majority of the work. Adria Towers also controlled the Cypress Point Condominium Association (“the Association” or plaintiff) until the fall of 2004, when control of the Association transferred to the unit owners of Cypress Point's condominiums.4

During construction of Cypress Point, the developer was issued four CGL policies by Evanston Insurance Company (“Evanston”) covering the time period from May 30, 2002 to July 15, 2006, and three by Crum & Forster Specialty Insurance Company (“Crum & Forster”), covering the time period from July 15, 2006 to July 15, 2009 (collectively, “the policies”). The policies, which are modeled after the standard form CGL policy promulgated by the Insurance Services Office, Inc. (“ISO”),5 provide 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.”

Pursuant to the terms of the policies, “property damage” includes [p]hysical injury to tangible property including all resulting loss of use of that property.” An “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

The policies also contain [v]arious provisions [that] ... restrict coverage [,] including an exclusion for “Damage to Your Work” (“the ‘your work’ exclusion”), which eliminates 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.’6 Notably, this exclusion “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.”7 (Emphasis added).

After completion of the condominium complex and transfer of control to the Association, several condominium owners began experiencing problems, such as roof leaks and water infiltration at the interior window jambs and sills of the residential units. The Association also became aware of damage caused by water intrusion into the common areas and interior structures of Cypress Point. As a result, the Association brought an action against the developer and several subcontractors. It alleged faulty workmanship during construction, including but not limited to, defectively built or installed roofs, gutters, brick facades, exterior insulation and finishing system siding, windows, doors, and sealants. The Association claimed consequential damages, consisting of, among other things, damage to steel supports, exterior and interior sheathing and sheetrock, and insulation, to Cypress Point's common areas, interior structures, and residential units (“the consequential damages”).8

After the Association filed suit, Adria Towers requested that Evanston defend and indemnify it against the Association's claims. When Evanston refused, and Adria Towers failed to file a declaratory judgment action against Evanston, the Association filed an amended complaint, seeking a determination whether its claims against the developer were covered by Evanston's CGL policies. Evanston subsequently filed an amended answer to the Association's complaint, denying any obligation to defend and indemnify the developer, as well as a third-party complaint against Crum & Forster, alleging that if Evanston did owe such an obligation, the rights and responsibilities under the Crum & Forster CGL policies should also be adjudicated.

Evanston and Crum & Forster (collectively, “the insurers”) filed motions for summary judgment, arguing, among other things, that they were not liable because the subcontractors' faulty workmanship did not constitute an “occurrence” that caused “property damage” as defined by the policies. The trial court agreed, concluding that faulty workmanship does not constitute an “occurrence” and that the consequential damages caused therefrom were not “property damage” under the terms of the policies because the damage arose entirely from faulty work performed by or on behalf of the developer. Accordingly, the trial court granted Evanston's motion for summary judgment and dismissed Crum & Forster's motion for summary judgment as moot. The Association filed a motion for reconsideration, which was denied.

In a published opinion, the Appellate Division reversed the trial court's grant of summary judgment in favor of the insurers, holding that “unintended and unexpected consequential damages [to the common areas and residential units] caused by the subcontractors' defective work constitute ‘property damage’ and an ‘occurrence’ under the [CGL] polic[ies].” Cypress Point Condo. Ass'n, Inc. v. Adria Towers, L.L.C., 441 N.J.Super. 369, 373, 118 A. 3d 1080 (App.Div.2015)

. The panel found that, under the plain language of the CGL policies, the damages alleged in the Association's claim satisfied the policies' definitions of “property damage” and “occurrence.” Id. at 375–77, 118 A .3d 1080. The panel also distinguished two prior New Jersey cases relied upon by the trial court in finding for the insurers, Weedo v. Stone–E–Brick, Inc., 81 N.J. 233, 405 A. 2d 788 (1979), and Firemen's Insurance Co. of Newark v. National Union Fire Insurance Co., 387 N.J.Super. 434, 904 A. 2d 754 (App.Div.2006), “because they (1) involved only...

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