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Air Master & Cooling, Inc. v. Selective Insurance Compamy of America

Superior Court of New Jersey, Appellate Division

October 10, 2017

AIR MASTER & COOLING, INC., Plaintiff-Appellant,
v.
SELECTIVE INSURANCE COMPANY OF AMERICA, Defendant-Respondent, and HARLEYSVILLE INSURANCE COMPANY, Defendant.

          Argued September 25, 2017

         On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-6861-14.

          Sharon K. Galpern argued the cause for appellant (Stahl & DeLaurentis, PC, attorneys; Ms. Galpern, on the briefs).

          Todd J. Leon argued the cause for respondent (Hill Wallack, LLP, attorneys; Mr. Leon, of counsel and on the brief; Victoria J. Airgood, on the brief).

          Before Judges Sabatino, Whipple and Rose.

          OPINION

          SABATINO, P.J.A.D.

         This declaratory judgment action poses several fundamental legal issues concerning property damage coverage under a Commercial General Liability ("CGL") insurance policy. The coverage issues arise out of lawsuits brought by a condominium association and unit owners to remediate construction defects within a residential building. The insured, Air Master & Cooling, Inc. ("Air Master"), had performed work as a subcontractor on the roof and elsewhere in the building. The construction defects concern property damage resulting from, among other things, the apparent progressive infiltration of water within the building.

         After Air Master was named as a third-party defendant in the underlying construction defects cases, it sought a defense and indemnity from Selective Insurance Company of America ("Selective"). Selective was one of a series of different insurers that had issued CGL policies to Air Master over successive policy periods.

         The trial court granted summary judgment to Selective in the declaratory judgment action, agreeing with the insurer that the property damage to the building already had manifested before Selective's policy period commenced. In appealing from that ruling, Air Master raises several legal issues, some of which are either completely novel or which have not been definitively addressed under New Jersey law.

         For the reasons explained in this opinion, we hold, first, that a "continuous trigger" theory of insurance coverage may be applied in this State to third-party liability claims involving progressive damage to property caused by an insured's allegedly defective construction work. Second, we hold that the "last pull" of that trigger - for purposes of ascertaining the temporal end point of a covered occurrence - happens when the essential nature and scope of the property damage first becomes known, or when one would have sufficient reason to know of it. Third, we reject Air Master's novel argument that the last pull of the trigger does not occur until there is expert or other proof that "attributes" the property damage to faulty conduct by the insured.

         Applying these principles, we vacate summary judgment and remand for further development of the record and for reconsideration of the coverage issues. We do so because the present factual record is insufficient to determine with clarity when the essential nature and scope of the water infiltration damage was sufficiently known, or reasonably could have been known, as to, respectively, (1) the individual condo units and (2) the roof. In making that assessment with an enhanced factual record, the trial court shall be particularly guided by the manifestation analysis set forth in Winding Hills Condominium Association, Inc. v. North American Specialty Insurance Co., 332 N.J.Super. 85, 88-93 (App. Div. 2000).

         I.

         The limited record provided on appeal presents the following relevant chronology. The insured, Air Master, worked as a subcontractor on the construction of a seven-story, 101-unit, mostly-residential condominium building in Montclair. The construction manager hired Air Master to perform HVAC[1] work in the building, which Air Master conducted between November 2005 and April 2008. As described in the record, Air Master's work consisted of installing condenser units on rails on the building's roof, and also HVAC devices within each individual unit.

         Starting in early 2008, some of the unit owners began to notice water infiltration and damage in their windows, ceilings, and other portions of their individual units. According to a November 4, 2010 story published in a local newspaper, unit owner Carlton Schultz, a fifth-floor resident, noticed by February 2008 the presence of leaks in his walls and windows. In addition, the story reported that another resident on the same floor, Raniya Kassem, noticed similar damage to her unit by July 2008. The newspaper story indicated that "[w]orkers eventually began to suspect that some of the leaks resulted from improper drainage from the balcony above Kassem's condo, " and the workers "tried making some adjustments to that balcony to halt that flow." The article further reported that leaks had been discovered in common area stairwells and the building's parking garage. The project's general contractor and developer began to respond to the problems, and certain investigations and remedial measures were commenced.

         Eventually, on April 29, 2010, an expert consultant, Jersey Infrared Consultants ("Jersey Infrared"), performed a moisture survey of the roof for water damage, as documented in a May 3, 2010 report. The report identified 111 spots on the roof damaged by moisture from water infiltration. The expert recommended that these damaged areas of the roof be removed and replaced.

         With respect to the timing of these conditions, the Jersey Infrared report stated that "it is impossible to determine when moisture infiltration occurred." The report raised a potential link of the water infiltration that the consultant had discovered on the roof to the previously-detected water problems on the floors below, noting that "[t]he absence of leaks in some areas [of the roof] may be due to the travel of moisture on the deck to another location where it could leak into the building."

         Schultz, Kassem, and the condominium association each sued the project's developer and other defendants for property damage and the costs of remediation. The three lawsuits were consolidated. The defendants, in turn, brought third-party complaints against Air Master and multiple other subcontractors that had worked on the project. Air Master then sought defense and indemnity from its various insurers that covered it under a succession of CGL policies.

         In particular, Air Master was insured by Penn National Insurance Company ("Penn National") for the policy period from June 22, 2004 (or 2005)[2] through June 22, 2009. Air Master thereafter had a policy with Selective covering June 22, 2009 through June 22, 2012. Finally, Air Master had a policy from Harleysville Insurance Company ("Harleysville") covering June 22, 2012 through June 22, 2015.

         Both Selective and Harleysville disclaimed coverage, denying that they had any duty to defend or indemnify Air Master against the property damages claims. They argued that the property damage had already manifested before their respective policy periods began.

         Penn National, which insured Air Master during the November 2 005 to April 2 0 08 time frame when it performed the work on the building, assumed the defense of the third-party complaints, subject to a reservation of its rights. Meanwhile, Harleysville moved for and obtained summary judgment because its policy did not commence until June 2012, long after the leaks had materialized.[3]That left open the coverage issues with respect to the middle carrier in the time sequence, Selective.

         Selective's CGL policy states, in relevant part, that the insurer is to provide coverage for bodily injury or property damage that occurs "during the policy period." In addition, the policy defines an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Further, the policy defines "property damage" as "physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it." Property damage also is defined to encompass "loss of use of tangible property that is not physically injured." Similarly, "[a]11 such loss of use shall be deemed to occur at the time of the 'occurrence' that caused it."

         Air Master filed this declaratory judgment action against Selective and Harleysville in the Law Division in September 2014. After limited discovery, including apparently interrogatory responses and document exchanges, Selective moved for summary judgment.

         Selective argued that it is not responsible for water damage that had materialized or manifested before the beginning of its coverage period in June 2 009. In opposition, Air Master countered that under a continuous-trigger theory, coverage by all applicable insurers continues until the "last pull" of the trigger of an injury occurs. According to Air Master, manifestation does not happen until it becomes known, or reasonably knowable, that such damage is "attributable" to the work of the insured. Based on those assertions, Air Master argued that, at the very earliest, the last "pull" of the coverage trigger here was in May 2010, when Jersey Infrared issued its roof moisture report.

         In her initial written decision dated June 10, 2016, the motion judge granted summary judgment to Selective on the ground that the continuous-trigger theory of coverage does not apply in New Jersey to first-party claims. See Winding Hills, supra, 332 N.J. Super, at 90-93 (articulating this distinction between first-party and third-party claims). Air Master moved for reconsideration. It persuaded the motion judge to change her mind and recognize that the present litigation involves, in fact, third-party liability claims against Air Master and thus the continuous- trigger doctrine does apply. The motion judge corrected herself on this discrete point in her August 5, 2016 written decision on reconsideration.

         Nonetheless, the motion judge still ruled that Selective is not liable for coverage or a duty to defend Air Master in this case, because she conclusively found that the damage to the building had manifested before Selective's policy period began in June 2009. The judge rejected Air Master's argument that the CGL coverage period continues until damages "attributable" to the insured have been discovered, or reasonably could have been discovered. As the judge noted in her written decision, "[t]here is no indication in the [Selective] Policy or in the case law that manifestation requires a separate analysis [of attribution] for each potentially liable insured." Discerning no questions of material fact were present, the judge added that "[i]t is not meaningfully ...


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