On appeal from the Superior Court, Law Division, Essex County.
Michels, Pressler and Trautwein. The opinion of the court was delivered by Pressler, J.A.D.
Plaintiff Hartford Insurance Group (Hartford) brought this declaratory judgment action seeking a determination that, pursuant to the terms of the completed operations and product hazard coverage of the general comprehensive liability policy issued by it to defendant Marson Construction Corp. (Marson), it was not obliged either to defend or to indemnify Marson in respect of damage claims made against Marson by the Newark Housing Authority (Authority). Marson appeals from a summary judgment entered in Hartford's favor declaring it to have no duty to defend. We reverse.
In June 1967 the Authority awarded Marson the general construction contract, one of five prime contracts, for the construction of nine apartment houses. Some ten years later the Authority brought suit against Marson and others seeking recovery for damages it allegedly sustained as a result of Marson's defective workmanship. The basis of the claim was that Marson's improper workmanship in the construction of outside walls had caused recurring structural leaks. As that litigation proceeded it appeared that there were three categories of damages which the Authority claimed had resulted from these defects. These included the cost of correcting Marson's defective work, the cost of temporarily relocating tenants of the defective buildings, and the cost of repairing or replacing some 1500 metal panels which had been furnished and installed by one of the other prime contractors and which were allegedly damaged by the water leakage through the walls Marson had constructed.
Upon institution of the action Marson forwarded the complaint to Hartford for defense. Hartford's refusal to defend was predicated on its conclusion that the specific risk giving rise to the Authority's lawsuit was within the exclusionary terms of the policy. It commenced this separate action seeking judicial vindication of its interpretation of the policy. During the pendency of this action the underlying action by the Authority against Marson was settled, apparently without allocation of the settlement sum to the various items of damages claimed.
The basis of the summary judgment in Hartford's favor and the consequent denial of Marson's motion for partial summary judgment as to the duty to defend was based on the trial judge's perception that the claims made against Marson by the Authority were within exclusion (m) of the policy to which the holding of Weedo v. Stone-E-Brick, Inc., 81 N.J. 233 (1979) applied. We are satisfied, however, that the trial judge erred and that while one or more of the Authority's damage claims may have been included within the exclusions of the policy, at least one or more of the claims were not.
As a general proposition, it is clear that under the typical liability policy, the duty of an insurer to defend is broader than its obligation to indemnify. The insurer's obligation to defend is triggered by a complaint against the insured alleging a cause of action which may potentially come within the coverage of the policy, irrespective of whether it ultimately does come within the coverage and hence irrespective of whether the insurer is ultimately obliged to pay. This principle, of course, applies where there is a factual issue between the third-party claimant and the insured, the resolution of which may result in an adjudication that at least part of the claim against the insured is within the policy coverage. See, generally, Burd v. Sussex Mutual Ins. Co., 56 N.J. 383 (1970); Ohio Cas. Ins. Co. v. Flanagin, 44 N.J. 504 (1965); Danek v. Hommer, 28 N.J. Super. 68 (App.Div.1953), aff'd o.b. 15 N.J. 573 (1954). We are satisfied that that was the case here.
The standard form of exclusion (m) of the general comprehensive liability policy here in question and upon which Hartford relies provides that the insurance does not apply "to property damage to work performed by or on behalf of the named insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith." Hartford further relies on the standard form of
exclusion (n), which provides that the insurance afforded by the policy does not apply
The history, purpose and import of exclusion (m) was comprehensively considered by the Supreme Court in Weedo v. Stone-E-Brick, Inc., supra. That opinion makes clear that the exclusion applies only in respect of claims for damage to the insured's own work arising out of his faulty workmanship. As explained by Justice Clifford,
The insured-contractor can take pains to control the quality of the goods and services supplied. At the same time he undertakes the risk that he may fail in this endeavor and thereby incur contractual liability whether express or implied. The consequence of not performing well is part of every business venture; the replacement or repair of faulty goods and works is a ...