CYPRESS POINT CONDOMINIUM ASSOCIATION, INC., Plaintiff-Appellant/ Cross-Respondent,
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,
PEREIRA CONSTRUCTION, L.L.C., and AMERICAN ARCHITECTURAL RESTORATION, Third-Party Defendants, and EVANSTON INSURANCE COMPANY, Defendant/Third-Party Plaintiff-Respondent/ Cross-Appellant, and NATIONAL INDEMNITY COMPANY, Third-Party Defendant, and CRUM & FORSTER SPECIALTY INSURANCE COMPANY, Third-Party Defendant-Respondent/Cross-Appellant
Argued May 27, 2015.
Approved for Publication July 9, 2015.
On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-2260-11.
Mark M. Wiechnik argued the cause for appellants/cross-respondents Cypress Point Condominium Association, Inc., ( Ansell Grimm & Aaron, P.C., attorneys; Mr. Wiechnik and Breanne M. DeRaps, on the brief).
Elliott Abrutyn argued the cause for respondent/cross-appellant Evanston Insurance Company ( Morgan Melhuish Abrutyn, attorneys; Mr. Abrutyn, of counsel; Mr. Abrutyn and Thomas G. Rantas, on the brief).
John S. Favate argued the cause for respondent/cross-appellant Crum & Forster Specialty Insurance Company ( Hardin, Kundla, McKeon & Poletto, P.A., attorneys; George R. Hardin and Arthur A. Povelones, Jr., of counsel; Mr. Hardin, Mr. Povelones, and Brian C. Alfson, on the brief).
Before YANNOTTI, FASCIALE and HOFFMAN,
Plaintiff, a condominium association, brought claims against the association's developer, Adria Towers, L.L.C. (the " developer" ), the developer's insurers, Evanston Insurance Company (" Evanston" ) and Crum & Forster Specialty Insurance Company (" Crum & Forster" ) (collectively the " insurers" ), and various subcontractors (the " subcontractors" ). The developer served as the general contractor on the condominium project and hired the subcontractors who performed all the construction work. Plaintiff sought coverage from the insurers under the developer's commercial general liability (" CGL" ) insurance policies for consequential damages caused by the subcontractors' defective work.
The judge determined that there was no " property damage" or " occurrence" as required by the policy to trigger coverage, granted summary judgment to Evanston, and dismissed the complaint against Crum & Forster as moot. Plaintiff appeals from a January 31, 2014 order denying reconsideration of the order granting summary judgment to Evanston. The insurers cross-appeal from various orders contending that if we reverse on plaintiff's appeal, then we should address their arguments raised, but not considered, by the judge.
We review the denial of a motion for reconsideration to determine whether the trial court abused its discretionary authority. Cummings v. Bahr, 295 N.J.Super. 374, 389, 685 A.2d 60 (App.Div. 1996). When reviewing an order granting summary judgment, we apply the same standards that the trial court applied when ruling on the motion. Oyola v. Xing Lan Liu, 431 N.J.Super. 493, 497, 70 A.3d 744 (App.Div.), certif. denied, 216 N.J. 86, 77 A.3d 489 (2013).
The sole question in this 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. We consider this issue by interpreting the plain language of the policy, which follows the Insurance Services Office, Inc.'s (" ISO" ) 1986 standard CGL form (the " 1986 ISO form" ). Applying the relevant standards, we reverse the order denying reconsideration, set aside the orders dismissing plaintiff's complaint, and remand with instructions to consider the insurers' alternate contentions that plaintiff's claims are otherwise excluded under the policy.
We hold that the unintended and unexpected consequential damages caused by the subcontractors' defective work constitute " property damage" and an " occurrence" under the policy. We base this holding in part on the developer's reasonable expectation that, for insurance risk purposes, the subcontractors' faulty workmanship is to be treated differently than the work of a general contractor. We reach that conclusion by viewing the policy as a whole and distinguishing 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), two opinions construing ISO's 1973 standard CGL form (the " 1973 ISO form" ).
We view the facts in the light most favorable to plaintiff, as we must do at this stage. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540, 666 A.2d 146 (1995).
The subcontractors failed to properly install the roof, flashing, gutters and leaders, brick and EIFS facade, windows, doors, and sealants (the " faulty workmanship" ). The faulty workmanship amounted to what has typically been considered in the construction industry as defective work. In the insurance industry, such replacement costs are usually regarded as a cost of doing business and are considered a " business risk." See Heldor Indus. v. A. Mut. Inc. Co., 229 N.J.Super. 390, 396, 551 A.2d 1001 (App.Div. 1988) (stating that " the insured assumes the risk of necessary replacement or repair . . . as a part of the cost of doing business" ). Plaintiff has not argued that the replacement costs constitute " property damage" and an " occurrence" under the policy.
According to plaintiff, 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."
In relation to sharing the cost of risks as a matter of insurance underwriting, consequential damages flowing from defective work are vastly different than the costs associated with replacing the defective work. See Hartford Ins. Grp. v. Marson Constr. Corp., 186 N.J.Super. 253, 258-59, 452 A.2d 473 (App.Div. 1982) (holding that defective work causing damage to other property is not a business risk), certif. denied, 93 N.J. 247, 460 A.2d 656 (1983); Newark Ins. Co. v. Acupac Packaging, Inc., 328 N.J.Super. 385, 392-93, 746 A.2d 47 (App.Div. 2000) (noting that damage to third-party property is a tort liability and not a business risk or work performance issue).
On appeal, plaintiff raises two principal arguments. First, plaintiff contends that under a plain reading of the language in the policy, the consequential damages constitute " property damage" and an " occurrence." Plaintiff asserts that we must conduct this initial threshold analysis. If a determination is made that " property damage" and an " occurrence" exist, plaintiff concedes that the insurers would be free to argue, on remand, that plaintiff's claims are otherwise excluded under the terms of the policy.
Second, plaintiff argues that the judge erroneously placed substantial reliance on the holdings in Weedo and Firemen's to determine whether there existed " property damage" and an " occurrence." Plaintiff maintains that those cases are distinguishable because they (1) involved only replacement costs flowing from a business risk rather than consequential damages caused by defective work; and (2) interpreted different policy language.
We begin by addressing plaintiff's first contention, that there exists " property damage" and an " occurrence" under the plain language of the policy. The following well-settled principles inform our analysis of the policy's terms.
A court's interpretation of an insurance contract is a determination of law. Sealed Air Corp. v. Royal Indem. Co., 404 N.J.Super. 363, 375, 961 A.2d 1195 (App.Div.), certif. denied, 196 N.J. 601, 960 A.2d 396 (2008). We afford no special deference to a trial court's interpretation of the law and the legal consequences that flow from the established facts. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378, 658 A.2d 1230 (1995). Accordingly, we review a trial court's interpretation of an insurance policy de novo. Sealed Air, supra, 404 N.J.Super. at 375, 961 A.2d 1195.
An insurance policy must be construed " as a whole and effect given to every part thereof." Herbert L. Farkas Co. v. N.Y. Fire Ins. Co., 5 N.J. 604, 610, 76 A.2d 895 (1950); Arrow Indus. Carriers, Inc. v. Cont'l Ins. Co. of N.J., 232 N.J.Super. 324, 334-35, 556 A.2d 1310 (App.Div. 1989) (noting that our " responsibility is to give effect to the whole policy, not just one part of it" ). When interpreting insurance contracts, we begin by first examining the plain language of the policy. Pizzullo v. N.J. Mfrs. Ins. Co., 196 N.J. 251, 270-71, 952 A.2d 1077 (2008). If the terms are clear, then we give them their plain and ordinary meaning. Ibid. Construction of the insurance policy must be " consistent with the insured's reasonable expectations." Sealed Air, supra, 404 N.J.Super. at 376, 961 A.2d 1195 (internal citation and quotation marks omitted).
Here, the language of the policy follows the 1986 ISO form. The policy provides the terms for coverage in Section I, A.1, with certain words defined in Section V. These sections provide in pertinent part:
SECTION I -- COVERAGES
COVERAGE A. BODILY INJURY & PROPERTY DAMAGE LIABILITY
1. Insuring Agreement.
a. We will pay those sums that the Insured becomes legally obligated to pay as damages because of . . . " property damage" to ...