The New Year might bring more to New Jersey than just the Super Bowl. Indeed, on November 25, 2013, the legislature introduced a bill before the New Jersey State Assembly, which, if enacted, would require general liability policies (in policies issued, renewed, or delivered in New Jersey) to contain a definition of “occurrence” which includes damages resulting from faulty workmanship. The introduction of A4510 is part of a growing trend in state legislatures that seek to resolve the “occurrence” issue by passing laws in a purported effort to clarify the term “occurrence” when determining coverage for construction defect claims.
A4510 provides that a commercial liability insurance policy delivered, issued, executed, or renewed in New Jersey must contain a definition of “occurrence” that includes: (1) an accident, including continuous or repeated exposure to substantially the same general harmful conditions; and (2) property damage or bodily injury resulting from faulty workmanship.
As we’ve previously explained (Is Defective Construction an “Occurrence”? The Answer Isn’t So Concrete), the definition of “occurrence” in the construction defect context is a thorny issue. Courts have varied in their holdings as to whether damage from faulty workmanship is accidental in nature and therefore an “occurrence.” See, e.g., Penn. Nat’l Mut. Cas. Ins. Co. v. Parkshore Dev. Corp., 403 Fed. App’x. 770 (3d Cir. 2010) (holding that a subcontractor’s faulty work that resulted in damage to the insured general contractor’s work was not an “occurrence”); Westfield Ins. Co. v. Custom Agri Sys., Inc., 979 N.E.2d 269 (Ohio 2012) (holding that defective construction work itself is not covered because it is not the result of an “occurrence,” but that the resulting damage may be covered because it was fortuitous and unintended); Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007) (finding coverage for damage to a building’s foundation, sheetrock, and stone veneer allegedly caused by the builder’s defective construction of a house’s foundation). By requiring a definition of “occurrence” that addresses both accidents and faulty workmanship, A4510 intends to reduce confusion by resolving coverage issues arising from courts’ varying interpretations of those issues.
Keep in mind, however, that if enacted, A4510 would not necessarily obligate insurers to provide coverage for construction defects. As the bill notes, it is not intended to restrict or limit the business risk exclusions commonly found in general liability policies (e.g., “your work” and “your product” exclusions), which might preclude coverage for faulty workmanship on other grounds.