NJ Supreme Court affirms that consequential damages caused by subcontractor’s faulty workmanship is property damage and an occurrence.

In August 2016, the New Jersey Supreme Court affirmed a 2015 Appellate Division decision that established that, pursuant to a plain meaning interpretation of the terms as defined in the Insurance Services Office, Inc.’s (ISO) 1986 standard CGL form, consequential damages caused by a subcontractor’s faulty workmanship constitute both “property damage” and an “occurrence” as contemplated by the standard CGL policy. The court utilized a three-step process to make this determination. First, the court examined whether the underlying facts of the plaintiffs’ claims were afforded initial coverage under the relevant insurance policies. Next, the court considered whether any policy exclusions (here, the “your work” exclusion) precluded coverage. Finally, the court considered whether an exception to the exclusion applied to restore coverage. It did. Cypress Point Condo. Ass’n, Inc. v. Adria Towers, L.L.C., 226 N.J. 403, 425 (2016). In practice, should an insurer wish to avoid providing coverage under a CGL policy for consequential damages caused by a subcontractor’s defective performance, it should negotiate away the subcontractor exception to the “your work” exclusion in the ISO’s 1986 standard CGL form.

^{Case Law Alerts, 1st Quarter, January 2017. Case Law Alerts is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Copyright © 2017 Marshall Dennehey Warner Coleman & Goggin, all rights reserved. This article may not be reprinted without the express written permission of our firm.}