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Vol. 3, Iss. 1
January 8, 2014


New Jersey Legislature Introduces Bill To Address Construction Defect Coverage


Over the past few years some state legislatures have no longer been able to hold their tongues in the face of what they see as dissatisfaction with courts ruling that damage to an insured’s defective workmanship does not qualify as having been caused by an “occurrence.” Legislative involvement in construction defect coverage kicked off in Colorado in May 2010. In 2011, three states followed Colorado’s lead – Hawaii, Arkansas and South Carolina -- and adopted legislation directly in response to court decisions in their states that they believed did not provide adequate coverage to contractors for construction defects. Interestingly, while all four states set out with the same motivations, each one adopted a different approach to achieve its objective.

In late November, Bill No. 4510 was introduced in the New Jersey Assembly. Following introduction it was referred to the Assembly Financial Institutions and Insurance Committee.

The proposed Garden State statute states that “a commercial liability insurance policy shall not be delivered, issued, executed, or renewed in this State, on or after the effective date of this act, unless the policy contains 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.” The proposed statute further provides that it “shall not be construed to restrict or limit the nature or types of exclusions from coverage that an insurer includes in a commercial liability insurance policy.”

The bill’s Statement of Purpose provides that, notwithstanding that liability coverage is most often written on standard form insurance policies, courts have varied in their holdings as to whether damage from faulty workmanship is accidental in nature and therefore within the definition of an occurrence, for which coverage is provided. The Statement goes on to cite a few New Jersey cases as well as one from the Tenth Circuit. The Statement concludes: “By providing a definition of occurrence that addresses both accidents and faulty workmanship, the bill is intended to reduce confusion in industry practices by resolving coverage issues arising from the holdings in various court decisions.”

As with other statutes of this type, by providing that it shall not be construed to restrict or limit policy exclusions, the bill does not create coverage for the repair or replacement of an insured’s own defective workmanship. That would remain excluded by the “your work” exclusion. So presumably the objective is to enable a general contractor to reach the “your work” exclusion’s “subcontractor exception,” which is not possible when an initial determination is made that faulty workmanship does not qualify as an “occurrence.”

Coverage Opinions will follow the progress of Assembly Bill No. 4510.

 
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